Question

Use the following to answer questions 26-27:

Taylor manufactures 12,000 units of a part used in its production to manufacture guitars. The annual production activities related to this part are as follows:

         Direct materials, $24,000

         Direct labor, $66,000

         Variable overhead, $54,000

         Fixed overhead, $84,000

Best Guitars, Inc., has offered to sell 12,000 units of the same part to Taylor for $22 per unit. If Taylor were to accept the offer, some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000. Moreover, $4 per unit of the fixed overhead applied to the part would be totally eliminated.

26.	What should Taylor's decision be, and what is the total cost savings that would result?
	A)	Buy, $59,400
	B)	Make, $77,400
	C)	Buy, $77,400
	D)	Make, $59,400

27.	In the decision to make or buy the part, what is the relevant fixed overhead?
	A)	$42,600
	B)	$84,000
	C)	$30,600
	D)	$54,600

Answer 1

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