Question

Multiple Choice Question 91 Waterway, Inc. currently manufactures a wicket as its main product. The costs per unit are as follows: Direct materials and direct labor $16 Variable overhead Fixed overhead 8 $29 Total Saran Company has contacted Waterway with an offer to sell it 4700 of the wickets for $23 each. If Waterway makes the wickets, variable costs are $21 per unit. Fixed costs are $8 per unit; however, $5 per unit is unavoi dable. Should Waterway make or buy the wickets? Make; savings $9400 Buy; savings $4700 Buy; savings $14100 Make; savings= $4700

Answer 1

Correct answer-----------Buy, saving $14,100

Working

Total Cost of Buying	$ 108,100
Total Cost of manufacturing	$ 122,200
Financial advantage of Buying	$ 14,100

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Differential Analysis
	Make	Buy
Direct material and labor	$ 75,200
Variable Overheads	$ 23,500
Fixed overhead	$ 23,500
Purchase price		$ 108,100
Total relevant Cost	$ 122,200	$ 108,100