Question
Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a
Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 6,000 units, are as follows: Direct materials $6.00 Direct labor $2.00 Variable manufacturing overhead $1.00 Fixed manufacturing overhead $4.00 Total cost $17.00 Assuming Cruise Company can purchase 6,000 units of the part from Suri Company for $14 each. If the part is purchased from Suri, (1) fixed manufacturing overhead can be eliminated by 75% ($3 per unit); and (2) the facilities currently used to make the part could be rented out to another manufacturer for $40,000 ($4 per unit) a year. What should Cruise Company do?
a Buy the part and save $1.00 per unit.
b Buy the part and save $2.00 per unit.
c Buy the part and save $3.00 per unit.
d Make the part and save $6.00 per unit.
e Make the part and save $1.00 per unit.
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