Answer:
Buying externally would cost the company additional cost of $12,400
Explanation:
Under the present arrangement it would cost Cullumber $99,200($8*12,400) to produce 12,400 yards internally.
However,the acceptance of the supplier offer would cost $ 111,600 ($6+$3)*12,400)) which is higher than the cost under the present internal production arrangement.
Make Buy difference
Variable cost($5*12,400) $62000 - ($62,000)
Fixed cost ($3*12400) $37,200 $37,200 -
Purchase price($6*12400) - $74,400 $74,400
Total $99,200 $111,600 $12,400
The company should continue to produce in-house since it is cheaper.
