Samsonov Corp. is trying to decide whether to make packaging for its products itself, or whether to outsource the materials to the Moltke Corp. Its current cost to produce 250,000 packages is:

Moltke Corporation offers to sell packages to Samsonov for $0.50 each.
A. Based only on financial considerations, and assuming the fixed costs are not avoidable, should Samsonov buy from Moltke? Why, or why not?
B. Assume that Samsonov could avoid $30,000 of the fixed costs if it stopped producing its own packages. Based only on financial considerations, should Samsonov buy from Moltke? Why, or why not?

Transcribed Image Text:

Direct materials $50,000 Direct labor $30,000 Variable manufacturing overhead $24,000 Fixed manufacturing overhead $46,000 Total manufacturing cost $150,000