Pueblo Production Company manufactures 50,000 high-definition televisions each y

Question

Pueblo Production Company manufactures 50,000 high-definition televisions each year. Pueblo is considering purchasing the glass screens from an outside source rather than producing them internally. The following data relate to the glass screens: Cost per screen from outside supplier Internal costs per screen $32.5 Direct materials Direct labor Variable overhead $17.50 $8.25 $2.60 Total fixed overhead $67,00 Avoidable fixed overhead $50,400 Should Pueblo purchase or produce the screens, and what is the savings associated with the decision? Produce the screens and save $207,500 Produce the screens and save $157,100 Purchase the screens and save $207,500 O Purchase the screens and save $157,100

Explanation / Answer

The Answer is – “Produce the screens and save $157,100”

Calculation of amount of savings associated with the produsing decision

= ($32.50 x 50,000) - [($17.50 + $8.25 + $2.60) x 50,000] - $50,400

= $157,100 (Savings)

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