Phil Company has offered to sell 10,000 units of the same part to Schmidt Corporation for $18 per unit

ACCOUNTING

Multiple Choice

Schmidt Corporation produces a part that is used in the manufacture of one of its products. The costs associated with the production of 10,000 units of this part are as follows:



Direct materials $ 45,000

Direct labor 65,000

Variable factory overhead 30,000

Fixed factory overhead 70,000

Total costs $210,000



Of the fixed factory overhead costs, $30,000 is avoidable.



Phil Company has offered to sell 10,000 units of the same part to Schmidt Corporation for $18 per unit. Assuming there is no other use for the facilities, Schmidt should

a. make the part as this would save $3 per unit.

b. buy the part as this would save $3 per unit.

c. buy the part as this would save the company $30,000.

d. make the part as this would save $1 per unit.

Click here for the SOLUTION