Lasso Corporation manufactures a variety of appliances which all use Part B89. C

Question

Lasso Corporation manufactures a variety of appliances which all use Part B89. Currently, Lasso Corporation manufactures Part B89 in its internal manufacturing process. Lasso Corporation produces 10,000 units of Part B89 annually. The annual costs to product Part B89 at the level of 10,000 units include Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost $3.30 $8.20 $4.40 $3.40 $19.30 All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier. Lasso Corporation has no alternative use for its manufacturing facilities. Nadal Parts Company has offered to sell 10,000 units of Part B89 to Lasso Corporation for $20.50 per unit. What should Lasso Corporation do? 0 A. Make the part and save $9.40 per unit. B. O C. Buy from Nadal Parts Company and lose $1.20 per unit. Make the part and save $4.50 per unit. D. Make the part and save $12.70 per unit.

Explanation / Answer

(C) If the part is purchased price would be $20.50 per unit but in case of manufacturing of parts, it would cost for $19.30 per unit. Hence, if the part is bought, Lasso corporation would lose $1.20 per unit.

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