Attitude, Inc. manufactures 100 units of part Z with the following costs per uni

Question

Attitude, Inc. manufactures 100 units of part Z with the following costs per unit:

Direct materials $6.00

Direct Labor $2.00

Variable Overhead $3.00

Fixed overhead $6.00

Total unit cost to make $17.00

Attitude Inc. has recently learned that it can purchase these 100 units from Device, Inc. for a total cost of $1,500. If the part were bought from Device; $1 per unit of the fixed overhead costs assigned to part Z could be totally eliminated. The unused capacity has no alternative use. Determine wheter Attitude Inc. should buy or manufacture the part, and the cost saving from selecting the least-cost alternative.

A) Manufacture and save $100

B) Buy and save $200

C) Buy and save) $100

D) Manufacture and save $300

Explanation / Answer

Correct Ans(d): Manufacture and Save $300.

Cost of Manufacturing=100 units*17=$1700

Cost of buying=$1500+$500(100Units*5)=$2000

Save when we manufacture ($2000-$1700)=$300

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