Answer:
If the company makes the units in-house, it will save $280,800.
Explanation:
First, we need to calculate the incremental cost of making the units. <u>We will take into account only the avoidable overhead costs, fixed costs will remain constant in both options (make or buy).</u>
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Direct materials= 4
Direct labor= 8
Avoidable overhead= 9*0.2= 1.8
Total variable cost= $13.8
Incremental cost= 54,000*13.8= $745,200
<u>Now, the total cost of buying:</u>
Buy= 54,000*19= $1,026,000
If the company makes the units in-house, it will save $280,800.