Question
ABC Company produces a part that is used in the manufacture of one of its products. The annual costs associated with the production of 5,000
ABC Company produces a part that is used in the manufacture of one of its products. The annual costs associated with the production of 5,000 units of this part are as follows:
Direct materials $100,000
Direct labor 56,000
Variable factory overhead 72,000
Fixed factory overhead 168,000
Total costs $396,000
Of the fixed factory overhead costs, $72,000 are avoidable. Another company has offered to sell 5,000 units of the same part to ABC for $70.00 per unit. The facilities currently used to make the part can be rented out to another manufacturer for $72,000 per year. What should ABC Company do?
Select one:
a. Make the part to save $50,000.
b. Buy the part and rent the facilities to save $72,000.
c. Buy the part and rent the facilities to save $22,000.
d. Make the part to save $22,000.
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