ProPrinters uses part 87A in the production of colour printers. Unit manufacturing costs of part 87A are as follows:
ProPrinters uses 100,000 units of 87A per year. Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12. Fixed overhead is unavoidable. $\begin{array}{lr}
\text { Direct materials } & \$ 8 \
\text { Direct labour } & 2 \
\text { Variable overhead } & 1 \
\text { Fixed overhead } & 4
\end{array}$
-Refer to the Figure.Should ProPrinters make or buy the part,and what would be the financial consequence?
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 $1,100,000 over buying it
D)buy the part because it will save $1,100,000 over making it

Question

Quizplus · Accepted Answer

To decide whether to make or buy, compare the relevant costs. Making costs $11 per unit ($8 + $2 + $1 for materials, labor, and variable overhead, since fixed overhead is unavoidable and thus not relevant). Buying costs $12 per unit. Over 100,000 units, making saves $1 per unit, totaling $100,000 savings over buying.

ProPrinters Uses Part 87A in the Production of Colour Printers