McGraw Inc.manufactures 12,000 units of a part used in its production to manufacture guitars.The annual production activities related to this part are as follows: Hill Inc.has offered to sell 12,000 units of the same part to McGraw for $22 per unit.If McGraw were to accept the offer,some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000.Moreover,$4 per unit of the fixed overhead applied to the part would be totally eliminated.
-What should McGraw's decision be,and what is the total cost savings that would result?
A)Make,$60,000
B)Buy,$60,000
C)Make,$78,000
D)Buy,$78,000

Question

McGraw Inc.manufactures 12,000 units of a part used in its production to manufacture guitars.The annual production activities related to this part are as follows:  Hill Inc.has offered to sell 12,000 units of the same part to McGraw for $22 per unit.If McGraw were to accept the offer,some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000.Moreover,$4 per unit of the fixed overhead applied to the part would be totally eliminated.
-What should McGraw's decision be,and what is the total cost savings that would result?
A)Make,$60,000 
B)Buy,$60,000 
C)Make,$78,000 
D)Buy,$78,000

Quizplus · Accepted Answer

Making the product would cost $60,000, while buying it would cost $78,000. Therefore, McGraw would save $18,000 by making the product.