Question

Tires Corp. produces a part that is used to manufacture one of its products. Total costs associated with the production of 10,000 units of the part are as follows:

Direct materials	$90,000
Direct labor	$130,000
Variable factory overhead	$60,000
Fixed factory overhead*	$140,000

*$60,000 is avoidable.

Wired Company has offered to sell 10,000 units of the same part to Tires Corp. for $36 per unit. Assuming there is no other use for the facilities, should Tires Corp. make or buy the part? What is the savings per unit?

Answer 1