Question

4. (3 pts) A soft drink manufacturer currently makes the aluminum cans for its beverages. It has the following costs for making 2,000,000 cans: Direct Material Direct Labor Variable Factory Overhead Fixed Factory Overhead Total $170K $50K $100K $150K $470K or $.235/can An aluminum manufacturing company that specializes in the manufacture of soft drink and beer cans has offered to sell cans al S.18/can. Should the soft drink company make or buy its cans? 200 okt 6.18 = 36ok. is 360k < 4704 360k 3 320k Thay should buy the make cans. the
this is a management systems control subject

Answer 1

Cost of buying 2,000,000 cans=$0.18*2000000=$360,000 or $360K

If company buy the cans, variable costs will be saved, fixed costs will incur irrespective whether company buys or makes.

Savings in variable cost=170+50+100=$320K

We find that savings in variable cost is lower than the cost of buying the cans. So, it is better to make the cans.