Question
Taylor manufactures 12,000 units of a part used in its production to manufacture guitars. The annual production activities related to this part are as follows:
Taylor manufactures 12,000 units of a part used in its production to manufacture guitars. The annual production activities related to this part are as follows:
Direct materials, $24,000
Direct labor, $66,000
Variable overhead, $54,000
Fixed overhead, $84,000
Best Guitars, Inc., has offered to sell 12,000 units of the same part to Taylor for $22 per unit. If Taylor were to accept the offer, some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000. Moreover, $5 per unit of the fixed overhead applied to the part would be totally eliminated.
52. | In the decision to make or buy the part, what is the relevant fixed overhead? | |
| A) | $55,800 |
| B) | $43,800 |
| C) | $67,800 |
| D) | $84,000 |
53. | What should Taylor's decision be, and what is the total cost savings that would result? | |
| A) | Buy, $64,200 |
| B) | Make, $46,200 |
| C) | Buy, $46,200 |
| D) | Make, $64,200 |
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