Question

McMurphy Corporation produces a part that is used in the manufacture of one of its products. The costs associated with the production of 13,000 units of this part are as follows: Direct materials Direct labor Variable factory overhead Fixed factory overhead Total costs $90,000 128,000 60,000 140,000 $418,000 Of the fixed factory overhead costs, $59,000 is avoidable. Conners Company has offered to sell 13,000 units of the same part to McMurphy Corporation for $41 per unit. Assuming there is no other use for the facilities, Schmidt should O A. make the part, as this would save $18 per unit OB. buy the part, as this would save $18 per unit OC. make the part, as this would save $15 per unit O D. buy the part, as this would save the company $234,000

Answer 1

Direct Materials	$                     90,000
Direct labor	$                  1,28,000
Variable Factory overhead	$                     60,000
Avoidable Fixed Factory overhead	$                     59,000
Total Relevant manufacturing Costs	$                  3,37,000
No. of units	$                     13,000
Manufacturing Costs per unit($337,000 / 13,000)	$                            26
Savings in Manufacturing($41-$26)	$                            15
So Option C is correct