1. The Chat Company manufactures 2,500 telephones per year. The full manufacturing costs per telephone are as follows:

Chat Company data

Direct materials

$4

Direct labor

16

Variable manufacturing overhead

12

Average fixed manufacturing overhead

10

Total

$42

1. The Electric Assembly Company has offered to sell Chat 2,500 telephones for $34 per unit. If Chat accepts the offer, $20,000 of fixed overhead will be eliminated. Chat should:

Make the telephones; the savings is $5,000

Buy the telephones; the savings is $15,000

Buy the telephones; the savings is $20,000

Make the telephones; the savings is $15,000