Bovee Company manufactures a part for its production cycle. The costs per unit for 10,000 units of this part are as follows:
The fixed factory overhead costs are unavoidable.
-Clarke Company has offered to sell 10,000 units of the same part to Bovee for $104 a unit. Assuming no other use for the facilities, Bovee should
A) make the part as this would save $8 per unit.
B) buy from Clarke as this would save $20 per unit.
C) make the part as this would save $20 per unit
D) buy from Clarke as this would save $8 per unit.

Question

Bovee Company manufactures a part for its production cycle. The costs per unit for 10,000 units of this part are as follows:
  The fixed factory overhead costs are unavoidable.
-Clarke Company has offered to sell 10,000 units of the same part to Bovee for $104 a unit. Assuming no other use for the facilities, Bovee should
A) make the part as this would save $8 per unit. 
B) buy from Clarke as this would save $20 per unit. 
C) make the part as this would save $20 per unit 
D) buy from Clarke as this would save $8 per unit.

Quizplus · Accepted Answer

If Bovee makes the part, it costs $96 per unit. Buying from Clarke costs $104 per unit, so making the part saves $8 per unit.

Bovee Company Manufactures a Part for Its Production Cycle