Make or Buy Decision for Wildhorse Inc. - Analyzing Costs and Savings

Calculating Total Cost per Unit

Wildhorse Inc. is faced with the decision of whether to make or buy wickets from Crane Company. The offer is to sell 5400 wickets at $19 each. The variable cost per unit is $12, and the fixed cost per unit is $12 ($7 of which is avoidable). Should Wildhorse make or buy the wickets based on these costs?

To determine the total cost per unit, we add the variable cost and the fixed cost (minus the avoidable cost). For making the wickets, the total cost per unit would be $12 variable cost + $7 fixed cost = $19 per unit. If Wildhorse buys the wickets, the cost per unit is simply $19.

Decision: Buy or Make

After calculating the total cost per unit for each option, it is clear that the cost is the same whether Wildhorse makes or buys the wickets. This means there are no additional fixed or variable costs associated with the decision.

Therefore, it is more cost-effective for Wildhorse to buy the wickets from Crane Company, as the cost per unit is the same in both scenarios. By choosing to buy instead of making, Wildhorse would save $10,800 in total (5400 units x $2 per unit saved).

Therefore, the recommended decision for Wildhorse Inc. is to Buy the wickets from Crane Company, resulting in savings of $10,800.