Zalinski Company manufactures a part for its production cycle. The costs per uni

Question

Zalinski Company manufactures a part for its production cycle. The costs per unit for 10,000 units of the part are as follows:

                                                           Per Unit

Direct materials                                       $25.00

Direct labor                                               20.00

Variable factory overhead                          10.00

Fixed factory overhead                              15.00

Total costs                                                $70.00

The fixed factory overhead costs are unavoidable. Tokic Company has offered to sell 10,000 units of the same part to Zalinski Company for $60 per unit. Assuming no other use for the facilities, Zalinski Company should ________.

A) make the part to save $25,000

B) make the part to save $50,000

C) buy the part from Tokic Company to save $40,000

D) buy the part from Tokic Company to save $60,000

Explanation / Answer

Relevant cost per unit to make = 25+20+10 = $55 Difference in favor of making=10000*(60-55) = $50000 Option B make the part to save $50,000 is correct

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