Question

B89 itself. It has been producing

9 comma 0009,000

units of Part B89 annually. The annual costs of producing Part B89 at the level of

9 comma 0009,000

units​ include:

Direct materials	$ 3.00$3.00
Direct labor	$ 8.30$8.30
Variable manufacturing overhead	$ 4.40$4.40
Fixed manufacturing overhead	$ 3.40$3.40
Total cost	$ 19.10$19.10

All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier. Assume Lasso can purchase

9 comma 0009,000

units of the part from the Nadal Parts Company for

$ 20.30$20.30

​each, and the facilities currently used to make the part could be used to manufacture

9 comma 0009,000

units of another product that would have a

$ 10$10

per unit contribution margin. If no additional fixed costs would be​ incurred, what should Lasso​ do?

A.

Continue to make the part to earn an extra

$ 6.60$6.60

per unit contribution to profit.

B.

Make the new product and buy the part to earn an extra

$ 8.80$8.80

per unit contribution to profit.

C.

Make the new product and buy the part to earn an extra

$ 5.40$5.40

per unit contribution to profit.

D.

Continue to make the part to earn an extra

$ 8.30$8.30

per unit contribution to profit.

Answer 1

Correct answer-------Make the new product and buy the part to earn an extra $ 5.40

Working

Differencial Analysis
	Make	Buy	Difference
Direct material	$              3.00		$              3.00
Direct labor	$              8.30		$              8.30
Variable manufacturing overhead	$              4.40		$              4.40
Loss on contribution margin on sale of another product	$           10.00
Purchase Cost		$             20.30	$         (20.30)
Total Cost	$           25.70	$             20.30	$              5.40