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

Question

Business

Krish Dougherty

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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Answers (1)

Know the Answer?

Deegan Ortega · Answer 1

Accepted

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