Make-Buy Decision: The following standard cost is for a part Jones Co. uses in processing: Part A Direct material $6.00 Direct labor 3.20 Var. overhead 1.25 Fix. overhead 2.50 Jones makes 2,000 units each year. If it purchases component part X2 (a sub-assembly of part A) of the unit for an outside supplier, the company can reduce direct material costs for part A by $3 per unit and direct labor costs by $1.20 per unit. In addition, 10% of variable overhead costs will be avoided. The purchase price of the component is $5. Placing the order will allow Jones to rent one of its buildings to a local ?rm for $8,000 per year. Should Jones make or buy X2 and how much, if any, difference would it make?
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