Begonia uses part 87A in the production of color printers.Unit manufacturing costs for part 87A are:
Begonia uses 130,000 units of 87A per year.Benzyl Company has offered to sell Begonia 130,000 units of 87A per year for $18.Fixed overhead is unavoidable.

Should Begonia make or buy the part?
A) It should make the part because it will save $390,000 over buying it.
B) It should buy the part because it will save $390,000 over making it.
C) It should make the part because it will save $1,250,000 over buying it.
D) It should buy the part because it will save 1,250,000 over making it.
E) It should buy the part because it will save $340,000 over making it.

Question

Begonia uses part 87A in the production of color printers.Unit manufacturing costs for part 87A are:  
 Begonia uses 130,000 units of 87A per year.Benzyl Company has offered to sell Begonia 130,000 units of 87A per year for $18.Fixed overhead is unavoidable.
 
Should Begonia make or buy the part?
A) It should make the part because it will save $390,000 over buying it. 
B) It should buy the part because it will save $390,000 over making it. 
C) It should make the part because it will save $1,250,000 over buying it. 
D) It should buy the part because it will save 1,250,000 over making it. 
E) It should buy the part because it will save $340,000 over making it.

Quizplus · Accepted Answer

It is cheaper to make the part in-house.
 11ea8a4c_48ae_95c9_a0e6_036c307ded3f_TB5550_00 Total cost of buying = Cost of buying per unit × Number units to be purchased = $18 × 130,000 units = $23,40,000
Total cost of making = Variable cost of making × Number units to be made = $15 × 130,000 units = $19,50,000
Making is cheaper than buying by $390,000 ($23,40,000 - $19,50,000).

Begonia Uses Part 87A in the Production of Color Printers