Question

Rubium Micro Devices currently manufactures a subassembly for its main product. The costs per unit are as​ follows: Direct materials ​$54.00 Direct labor 35.00 Variable overhead 40.00 Fixed overhead 34.00 Total costs ​$163.00 Crayola Technologies Inc. has contacted Rubium with an offer to sell​ 6,000 of the subassemblies for​ $144.00 each. Rubium will eliminate​ $89,000 of fixed overhead if it accepts the proposal. Should Rubium make or buy the​ subassemblies? What is the difference between the two​ alternatives?
A. ​Buy; savings​ = $7,000
B. ​Make; savings​ = $203,000
C. ​Buy; savings​ = $89,000
D. ​Make; savings​ = $1,000

Answer 1

Answer:D.None of the option is correct, the correct answer is Buy; savings=$203,000

Explanation:

The firm will Incurred the total fixed overhead it decides to make.

The total cost of making 6000 units is $163*6000=$978,000

The total cost of buying is $144*6000= $864,000 and when we deduct $89,000 to be saved from fixed overhead by buying we have a total cost of( $864,000-$89,00) =775,000.

This invariably means the company will save ($978,000-$775,000) which is equal to= $203,000 by buying.