Cruise Company produces a part that is used in the manufacture of one of its pro

Question

Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this? part, assuming a production level of? 6,000 units, are as? follows: Direct materials ?$4.00 Direct labor ?$4.00 Variable manufacturing overhead ?$3.00 Fixed manufacturing overhead ?$1.00 Total cost ?$12.00 The fixed overhead costs are unavoidable. Suri Company has offered to sell? 6,000 units of the same part to Cruise Company for? $14 per unit. Assuming the company has no other use for its? facilities, what should Cruise Company? do? A. Make the part and save? $10 per unit. B. Make the part and save? $3 per unit. C. Make the part and save? $6 per unit. D. Buy from Suri and save? $2 per unit.

Explanation / Answer

Per unit Make Buy Direct materials 4 Direct labor 4 Variable manufacturing overhead 3 Purchase cost 14 Total 11 14 Option B Make the part and save? $3 per unit is correct

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