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Allen Industries manufactures 75,000 digital cameras each year, Allen has been producing the lenses internally However, late last year the company received an offer to
Allen Industries manufactures 75,000 digital cameras each year, Allen has been producing the lenses internally However, late last year the company received an offer to produce the 150.000 lenses the company uses each year for a total contract price of $380,000. When Allen manufactures the lenses internally, direct materials cost $1.05 per lens, direct labor is $.65 per lens, and variable overhead is $.30 per lens. Allen's total overhead is $110,000. If the lens were purchased, $28,000 of fixed overhead could be avoided. Should Allen purchase or produce the lenses, and what is the savings associated with the decision? Purchase and save $2.000 O Produce and save $2,000 Produce and save $52,000 Purchase and save $52,000
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