Question

Cuestr McMurphy Corporation produces a part that is used in the manufacture of one of its products. The costs associated with the production of 10,000 units of this part are as follows: Direct materials $86,000 Direct labor 129,000 Variable factory overhead 56,000 Fixed factory overhead 139,000 Total costs $410,000 Of the fixed factory overhead costs, $59,000 is avoidable. Conners Company has offered to sell 10,000 units of the same part to McMurphy Corporation for $36 per unit Assuming there is no other use for the facilities, Schmidt should O A. make the part, as this would save $6 per unit O B. make the part, as this would save $3 per unit O C. buy the part, as this would save the company $60,000 O D. buy the part, as this would save $6 per unit

Answer 1

10000 (Units) Make Buy Cost of Purchase @36 360000 cost of Making Direct Material 86000 Direct Labour 129000 Variable Manuafacturing Cost 56000 Fixed Manufacturing Cost Avoidable 59000 Fixed Manufacturing Cost Unavoidable 80000 80000 Total Cost 410000 440000 Finanaicla Advantage for making 30000 Answer: B Make the Part as this would save $3 Per Units