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 6,100 units, are as follows: $4.00 $4.50 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost The fixed overhead costs are unavoidable. $1.50 $13.20 Suri Company has offered to sell 6,100 units of the same part to Cruise Company for $14.40 per unit. Assuming the company has no other use for its facilities, what should Cruise Company do? A. Make the part and save $10.20 per unit O B. Buy from Sun and save $1.20 per unit. O C. Make the part and save S5.70 per unit. D. Make the part and save $2.70 per unit.

Explanation / Answer

Differential analysis :

Make the part and save (14.40-11.70) = 2.70 per unit

so answer is d) Make the part and save $2.70 per unit

Make Buy Direct material 4.00 Direct labour 4.50 Variable manufacturing overhead 3.20 Purchase cost 14.40 Total 11.70 14.40

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