Homework Answers
Avoidable fixed production cost = 8,000 * $20 * 25% = $40,000
Relevant costs to make = Variable production cost + Avoidable fixed production cost
= (8,000 * $16) + $40,000
= $168,000
Relevant costs to buy = 8,000 * $28
= $224,000
Financial disadvantage = Relevant costs to buy - Relevant costs to make
= $224,000 - $168,000
= $56,000
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