Question

Christian Company manufactures a part for its production cycle. The annual costs per unit for 5,000 units of the part are as follows:
Per Unit
Direct materials $3.00
Direct labor 5.00
Variable factory overhead 4.00
Fixed factory overhead 2.00
Total costs $14.00
The fixed factory overhead costs are unavoidable. Another company has offered to sell 5,000 units of the same part to Christian Company for $15 per unit. The facilities currently used to make the part could be rented out to another manufacturer for $20,000 a year. Christian Company should ________.
A) make the part to save $5,000
B) make the part to save $15,000
C) buy the part and rent facilities to save $5,000
D) buy the part and rent facilities to save $15,000

Answer 1

Answer:D

Explanation:

By renting it out the fixed factory cost sublet to another manufacturer will generate an extra 20,000. 5000 from that profit will be added to make the purchase and keep 15,000

Answer 2

Make the part to save $15000