Answer:
Stephans shall make the product.
The difference is of $5,000 to be saved in case of making the product.
Explanation:
Provided details,
Cost per unit
Variable = Direct material $1 + Direct Labor $10 + Variable Overhead $5.00
= $16
Fixed overhead = $8
Including fixed cost the cost per unit of manufacturing = $16 + $8 = $24
In case of buying cost = $22 per unit.
Cost for 5,000 units in case of buying = $22 5,000 = $110,000
Cost of making 5,000 units = $24 5,000 = $120,000
Fixed cost for 5,000 units = $8 5,000 = $40,000
$25,000 cost is avoidable.
Therefore non avoidable cost = $40,000 - $25,000 = $15,000
Therefore total cost of purchasing = $110,000 + $15,000 = $125,000
Since total cost of purchasing is more than cost of making, goods shall be manufactured and not produced.
Difference = $125,000 - $120,000 = $5,000 additional in case of purchasing.