Answer:
The company should continue making the unit. It is cheaper than buying by $7,000.
Explanation:
Giving the following information:
Variable costs are $1.80 per unit
fixed costs= $70,000 per year
Purchasing price per unit= $2.90
<u>I will assume that the fixed costs (not allocated) are avoidable.</u>
First, we need to calculate the total cost of making the unit:
Total cost= 70,000*1.8 + 70,000= $196,000
<u>Buying:</u>
Total cost= 70,000*2.9= $203,000
The company should continue making the unit. It is cheaper than buying by $7,000.
