Lynn Valley Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows:
Reliance Corp has contacted Lynn Valley with an offer to sell them 5,000 of the subassemblies for $44.00 each. Lynn Valley will eliminate $50,000 of fixed overhead if it accepts the proposal.
Should Omark make or buy the subassemblies? What is the difference between the two alternatives?
A) buy; savings = $20,000
B) buy; savings = $50,000
C) make; savings = $60,000
D) make; savings = $10,000
E) buy; savings = $10,000

Question

Lynn Valley Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows:
 Reliance Corp has contacted Lynn Valley with an offer to sell them 5,000 of the subassemblies for $44.00 each. Lynn Valley will eliminate $50,000 of fixed overhead if it accepts the proposal.
Should Omark make or buy the subassemblies? What is the difference between the two alternatives?
A) buy; savings = $20,000 
B) buy; savings = $50,000 
C) make; savings = $60,000 
D) make; savings = $10,000 
E) buy; savings = $10,000

Quizplus · Accepted Answer

Cost to buy: 5,000 × $44 = $220,000;
Cost to make: (($2.00 + 20.00 + 10.00) × 5000) + $50,000 = $210,000
$220,000 - 210,000 = $10,000 ** make

Lynn Valley Corporation Currently Manufactures a Subassembly for Its Main