Question

Craydye Corporation manufactures a part for its production cycle. The costs per unit for 8,000 units of this part are as follows: Direct materials $ 24 Direct labor 42 Variable overhead 15 Fixed overhead 25 Total $106 Zinkyl Company has offered to sell Craydye Corporation 8,000 units of the part for $120 per unit. If Craydye Corporation accepts Zinkyl Company's offer, total fixed overhead will be reduced by $40,000. What alternative is more desirable and by what amount is it more desirable

Answer 1

Answer:

Make; $72,000

Working:

Make ($106*8000)                         848,000

Buy [($120*8000 - 40,000)]           920,000

Make increases profits by              72,000

Answer 2

Answer: Please refer to Explanation

Explanation:

Craydye Corporation Cost of Making it themselves

=Total Cost * No. of units

= $106 * 8,000

= $848,000

Craydye Corporation Cost of buying from Zinkyl Company

= Purchase price * No. of units - Fixed cost reduction

= 120 * 8,000 - 40,000

= $920,000

=920,000 - 848,000

= $72,000

Craydye Corporation Making it themselves themslves is more desirable by a cost reduction of $72,000