Question

Heath Company uses 10,000 units of a part in its production process. The costs to make a part are: direct material, $12; direct labor, $25; variable overhead, $13; and applied fixed overhead, $30. Heath has received a quote of $55 from a potential supplier for this part. If Heath buys the part, 70 percent of the applied fixed overhead would continue. Heath Company would be better off by Select one: a. $160,000 to manufacture the part b. $40,000 to buy the part c. $150,000 to buy the part d. $50,000 to manufacture the part.

Answer 1

Answer: 40,000 to buy the part

Explanation:

Cost to buy : $55/ 10,000= 550,000

Cost to manufacture: (12+25+13+9)=59

The difference: $4/10,000= 40,000