Collins Company uses 12,000 units of a part in its production process. The costs to make a part are: direct material, $15; direct labor, $27; variable overhead, $15; and applied fixed overhead, $32 . Eichholtz has received a quote of $60 from a
potential supplier for this part. If Collins buys the part, 75 percent of the applied fixed overhead would continue. Collins Company would be better off by
a. $30,000 to manufacture the part.
b. $348,000 to buy the part.
c. $60,000 to buy the part.
d. $216,000 to manufacture the part.
C
Cost to buy: $60/unit * 12,000 units = $720,000
Cost to manufacture: $(15+27+15+8)= $65/unit
Incremental difference in favor of buying: $5/unit * 12,000 units = $60,000
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