Answer:
There is negative saving on total cost when it buys = -$12400
Explanation:
Per unit fixed costs = $3
Per unit variable costs = $5
Total cost of an unit = $8
Offer by supplier = 12400 units at $6 per units.
First calculate the amount when it makes:
Variable cost = 12400*5 = 62000
Fixed costs = 12400*3 = 37200
Total cost when it makes = 62000 + 37200 = $99200
First calculate the amount when it buys:
Fixed costs = 12400*3 = 37200
Purchase price = 12400*6 = $74400
Total cost when it buys = 37200 + 74400 = $111600
Since the total cost of buying is greater, so it should make the part.
However, the total cost saving when it makes the part = Total cost when it buys -Total cost when it makes
= $111600-$99200
= $12400
There is negative saving on total cost when it buys = -$12400
