20. Ballerina Manufacturing Company can make 100 units of a necessary component

Question

20. Ballerina Manufacturing Company can make 100 units of a necessary component part with the following costs:

Direct Materials $60,000

Direct Labor 10,000

Variable Overhead 30,000

Fixed Overhead 20,000

If Ballerina Manufacturing Company can purchase the component externally for $110,000 and only $5,000 of the fixed costs can be avoided (eliminated, reduced, goes away) what is the correct make-or-buy decision?

A) Make and save $5,000

B) Buy and save $5,000

C) Make and save $15,000

D) Buy and save $15,000

Explanation / Answer

D) Buy and save $15,000

Ballerina Manufacturing Company should buy the component and save = ($110,000 + $5,000) - ($60,000 + $10,000 + $30,000) = $15,000

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