Question
Frederick Co. is thinking about having one of its products manufactured by a subcontractor. Currently, the cost of manufacturing 5,000 units follows: Direct material $62,000
Frederick Co. is thinking about having one of its products manufactured by a subcontractor. Currently, the cost of manufacturing 5,000 units follows:
Direct material | $62,000 |
Direct labor | 47,000 |
Variable factory overhead | 38,000 |
Factory overhead | 52,000 |
If Frederick can buy 5,000 units from a subcontractor for $130,000, it should:
Make the product because current factory overhead is less than $130,000. | ||
Make the product because the cost of direct material plus direct labor of manufacturing is less than $130,000. | ||
Make the product because factory overhead is a sunk cost. | ||
Buy the product because total fixed and variable manufacturing costs are greater than $130,000. | ||
Buy the product because the total incremental costs of manufacturing are greater than $130,000. |
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