Figure 13-2. ColorPro uses part 87A in the production of color printers. Unit manufacturing costs for part 87A are:
ColorPro uses 100,000 units of 87A per year. Filbert Company has offered to sell ColorPro 100,000 units of 87A per year for $12. Fixed overhead is unavoidable.
-Refer to Figure 13-2. Now suppose that ColorPro discovers that other costs will increase by $7,000 per year if the component is purchased rather than made internally. Should ColorPro make or buy the part?
A) Make the part because it will save $100,000 over buying it.
B) Buy the part because it will save $100,000 over making it.
C) Make the part because it will save $107,000 over buying it.
D) Buy the part because it will save $107,000 over making it.
E) Make the part because it will save $10,000 over buying it.

Question

Figure 13-2. ColorPro uses part 87A in the production of color printers. Unit manufacturing costs for part 87A are:
  ColorPro uses 100,000 units of 87A per year. Filbert Company has offered to sell ColorPro 100,000 units of 87A per year for $12. Fixed overhead is unavoidable.
-Refer to Figure 13-2. Now suppose that ColorPro discovers that other costs will increase by $7,000 per year if the component is purchased rather than made internally. Should ColorPro make or buy the part?
A) Make the part because it will save $100,000 over buying it. 
B) Buy the part because it will save $100,000 over making it. 
C) Make the part because it will save $107,000 over buying it. 
D) Buy the part because it will save $107,000 over making it. 
E) Make the part because it will save $10,000 over buying it.

Quizplus · Accepted Answer

The additional costs of $7,000 per year for buying the part will reduce the savings from buying the part to $100,000 - $7,000 = $93,000. Since the savings from making the part are $107,000, ColorPro should make the part.