Multiple Choice Question 91 Sunland Company currently manufactures a wicket as i

Question

Multiple Choice Question 91 Sunland Company currently manufactures a wicket as its main product. The costs per unit are as follows: Direct materials and direct labor $12 Variable overhead 5 Fixed overhead 8 Total $25 Saran Company has contacted Sunland with an offer to sell it 3900 of the wickets for $19 each. If Sunland makes the wickets, variable costs are $17 per unit. Fixed costs are $8 per unit; however, $5 per unit is unavoidable. Should Sunland make or buy the wickets? Buy; savings = $3900 Buy; savings = $11700 Make; savings = $7800 Make; savings = $3900

Explanation / Answer

A.Buy savings =$3,900.

the following is the calculation of make or buy decision:

buying helps in saving ($20-$19)=>$1 per unit

so total saving by buying will be = $1*3900 wickets =>$3,900.

make buy Purchase price nil $19 direct material and labour $12 nil variable overhead $5 nil fixed overhead (only avoidable is relevant) ($8 - $5 unavoidable) $3 total cost $20 $19

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