Question

Potter Company manufactures a part for its production cycle. The annual costs per unit for 10,000...

Potter Company manufactures a part for its production cycle. The annual costs per unit for 10,000 units for the part are as follows:

    Per Unit

Direct materials.   $20.00

Direct labor 15.00

Variable factory overhead. 16.00

Fixed factory overhead 10.00

Total costs $61.00

The fixed factory overhead costs are unavoidable. Paulson Company has offered to sell 10,000 units of the same part to Potter Company for $60 per unit. The facilities currently used to make the part could be rented out to another manufacturer for $100,000 per year. Potter company should

A) make the part to save $10,000

B) buy the part and rent the facilities to save $10,000

C) make the part to save $25,000

D) buy the part and rent the facilities to save $25,000

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Answer #1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

Answer Firstly we have to see whether there is advantage or disadvantage for buying a part from Paulson Company Financial adv

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