Question
Plainfield Company manufactures part G for use in its production cycle. The full cost per unit for each of 10,000 units of part G manufactured
Plainfield Company manufactures part G for use in its production cycle. The full cost per unit for each of 10,000 units of part G manufactured per year by Plainfield are as follows:
Direct materials | $ 2 |
---|---|
Direct labor | 22 |
Variable overhead | 5 |
Fixed overhead | 14 |
$ 43 |
Verona Company has offered to sell Plainfield 10,000 units of part G for $40 per unit. If Plainfield accepts Verona's offer, the released facilities could be used to save $54,000 in relevant costs in the manufacture of part H. In addition, $11 per unit of the fixed overhead applied to part G would be eliminated. Based solely on a short-term financial analysis, which alternative is more desirable and by what amount?
Alternative | Amount | |
---|---|---|
A) | Manufacture | $ 10,000 |
B) | Manufacture | $ 34,000 |
C) | Buy | $ 54,000 |
D) | Buy | $ 84,000 |
E) | Buy | $ 10,000 |
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