Frederick Co. is thinking about having one of its products manufactured by an outside supplier.

Currently, the cost of manufacturing 5,000 units follows:

Direct material$62,000Direct labor47,000Variable factory overhead38,000Factory overhead52,000

If Frederick can buy 5,000 units from an outside supplier for $130,000, it should:

Multiple Choice

• 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.