Question
Dancing Moon Appliance produces 9,000 units of Part B89 annually. The annual costs of producing Part B89 at the level of 9,000 units include: Direct
Dancing Moon Appliance produces 9,000 units of Part B89 annually. The annual costs of producing Part B89 at the level of 9,000 units include:
Direct materials $3.00
Direct labor $8.00
Variable manufacturing overhead $4.00
Fixed manufacturing overhead $3.00
Total cost $18.00
All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier. Assume Moon Appliance can purchase 9,000 units of the part from Nadal Parts Company for $20.00 each, and the facilities currently used to make the part could be used to manufacture 9,000 units of another product that would have a $6 per unit contribution margin if no additional fixed costs would be incurred, what should Moon Appliance do?
A) Continue to make the part to earn an extra $2.00 per unit contribution to profit.
B) Make the new product and buy the part to earn an extra $4.00 per unit contribution to profit.
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