A Night Vision Goggle Manufacturer Is Evaluating a Make- Versus-

Essay

A night vision goggle manufacturer is evaluating a make- versus- purchase situation for a component used in its low- priced products. The component can be purchased at a variable wholesale price of P = 1200 + 50X, where X is the number of items. Alternatively, the component can be produced with a direct material cost of $17 per item and direct labor cost of $38 per item. The manufacturing overhead is allocated at 150% of direct labor cost per item. If the company requires, on average, 575 items each year, should the item be purchased or manufactured?