Tom's Toolery is operating at 80% of its productive capacity. It is currently paying $42...
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Tom's Toolery is operating at 80% of its productive capacity. It is currently paying $42 per unit for a part used in its manufacturing operation. Tom's estimates it could make the part internally for a total cost of $42 per unit, consisting of $27 of unit-level production costs and $15 of facility-level costs that are currently attributed to other products. Tom's usually purchases 59,000 units of the part each year. These units could be manufactured using Tom's excess capacity. What is the effect on cost if the company decides to start making the part?
a. $885,000 cost decrease
b. $118,000 cost increase
c. $236,000 cost increase
d. $1,180,000 cost increase
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