Figure 12-2. ColorPro uses part 87A in the production of color printers. Unit ma

Question

Figure 12-2.

ColorPro uses part 87A in the production of color printers. Unit manufacturing costs of part 87A are:

Direct materials

$8

Direct labor

2

Variable overhead

1

Fixed overhead-common costs

4

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 12-2. 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?

Direct materials

$8

Direct labor

2

Variable overhead

1

Fixed overhead-common costs

4

Explanation / Answer

d. make the part because it will save $10,000 over buying it

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