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Question 10

SDZ Company currently manufactures a sub assembly for its main product. The costs per unit of the subassembly are as follows:

Direct materials $ 1.50

Direct labor $15.00

Variable overhead $8.00

Fixed overhead $ 20

Henry Corp has contacted SDZ Company with an offer to outsource 5,000 sub-assemblies for $40 each.

Required:

Should SDZ Company make or buy the subassemblies? Calculations are required to support your answer.