Answer:
If the company decides to purchase the parts, its total costs will increase by $3,400, so it should continue to manufacture the part.
Explanation:
current production costs:
direct materials $15,800
Direct labor $6,900
Variable overhead $16,800
Fixed overhead $12,000
total costs = $51,500
if the company can purchase the 100 units form an outside vendor for $47,100 and avoid $4,100, its total costs would be:
purchase price $47,000
fixed overhead = $12,000 - $4,100 = $7,900
total costs = $54,900
If the company decides to purchase the parts, its total costs will increase by $3,400, so it should continue to manufacture the part.
