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12 September, 13:14

Carmen manufactures a unit called A2. Variable manufacturing costs per unit of A2 are as follows:The Don Company has offered to sell Carmen 5,000 units of A2 for $22 per unit. If Carmen accepts the offer, $60,000 of fixed manufacturing overhead will be eliminated. Applying differential analysis to the situation, what should Carmen do? Support your answers with the calculations you used to make your decision. Direct materials$1Direct labor$10Variable manufacturing overhead$5

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  1. 12 September, 13:43
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    Explanation:

    In this question, we have to compare the make or buy options which are shown below:

    Particulars Make Buy

    Direct materials (5,000 units * $1) $5,000

    Direct labor (5,000 units * $10) $50,000

    Variable manufacturing overhead

    (5,000 units * $5) $25,000

    Fixed manufacturing overhead $60,000 $110,000 (5,000 units * $22)

    Total $140,000 $110,000

    Since in buy decision, the cost is minimum. So, the company should accept this offer
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