McMurphy Corporation produces a part that is used in the manufacture of one of its products. The costs associated with the production of 12,000 units of this part are as follows:

Of the fixed factory overhead costs, $55,000 is avoidable. Conners Company has offered to sell 12,000 units of the same part to McMurphy Corporation for $41 per unit.
Assuming there is no other use for the facilities, Schmidt should ________.
A) make the part, as this would save $16 per unit
B) buy the part, as this would save $16 per unit
C) buy the part, as this would save the company $192,000
D) make the part, as this would save $14 per unit

Question

McMurphy Corporation produces a part that is used in the manufacture of one of its products. The costs associated with the production of 12,000 units of this part are as follows:

Of the fixed factory overhead costs, $55,000 is avoidable. Conners Company has offered to sell 12,000 units of the same part to McMurphy Corporation for $41 per unit.
Assuming there is no other use for the facilities, Schmidt should ________.
A) make the part, as this would save $16 per unit 
B) buy the part, as this would save $16 per unit 
C) buy the part, as this would save the company $192,000 
D) make the part, as this would save $14 per unit

Quizplus · Accepted Answer

Avoidable costs total $325,000 = $86,000 + $126,000 + $58,000 + $55,000.
$41 - ($325,000 / 12,000) = $14

McMurphy Corporation Produces a Part That Is Used in the Manufacture