Grey Inc. has been purchasing a component, Z, for $85 per unit. The company is currently operating at 75% of full capacity, and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Z, determined by the absorption costing method, is estimated as follows:
Direct materials: $30
Direct labor: $15
Variable factory overhead: $10
Total: $55
A differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Z.
Grey Inc. Proposal to Manufacture Part Z
March 12, 20XX
Purchase price of Part Z: $______
Differential cost to manufacture Z:
Direct materials: $____
Direct labor: $____
Variable factory overhead: $____
Total: $____
Cost savings from manufacturing Part Z: $_____