AB Furniture currently manufactures rocking chairs as its main product. Each chair uses one seat cushion and one back cushion with the following costs per set of cushions (one seat and one back):

Direct materials$1

Direct labor10

Variable overhead5

Fixed overhead8

Total$24

ZQE Company has contacted AB with an offer to sell it 5,000 sets of cushions for $18 each. If Wood Chuck buys the cushions, $2 of the fixed overhead per unit will be allocated to other products.

Instructions

Should AB make or buy the cushions? Show calculations.