Answer:
If the company buys the subcomponent, the company will save $4,484.
Explanation:
Giving the following information:
Production= 11,800 units
Direct materials= $9,912
Direct labor= $13,334
Variable overhead= $14,868
Total variable cost= $38,114
An outside supplier has offered to sell Waterway the subcomponent for $2.85 a unit.
We have no reason to believe that the fixed costs are avoidable. Therefore, they take no part in the decision making process.
Total cost of production= 38,114
Total cost of buying= 11,800*2.85= 33,630
If the company buys the subcomponent, the company will save $4,484.
