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Pear Company manufactures 5,000 telephones per year. The full manufacturing costs per telephone are as follows: Direct materials Direct labor Variable manufacturing overhead Average

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Pear Company manufactures 5,000 telephones per year. The full manufacturing costs per telephone are as follows: Direct materials Direct labor Variable manufacturing overhead Average fixed manufacturing overhead Total $2 8 5 $20 Phony USA has offered to sell Pear Company 5,000 telephones for $20 per unit. If Pear Company accepts the offer, $12,500 of fixed overhead will be eliminated. Applying differential analysis to the situation, should Pear Company make or buy the phones?

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