Rubium Micro Devices currently manufactures a subassembly for its main product. The costs per unit are as follows:

Crayola Technologies Inc. has contacted Rubium with an offer to sell 6,000 of the subassemblies for $144.00 each. Rubium will eliminate $89,000 of fixed overhead if it accepts the proposal. Should Rubium make or buy the subassemblies? What is the difference between the two alternatives?
A) Buy; savings = $89,000
B) Buy; savings = $7,000
C) Make; savings = $1,000
D) Make; savings = $203,000

Question

Rubium Micro Devices currently manufactures a subassembly for its main product. The costs per unit are as follows:

Crayola Technologies Inc. has contacted Rubium with an offer to sell 6,000 of the subassemblies for $144.00 each. Rubium will eliminate $89,000 of fixed overhead if it accepts the proposal. Should Rubium make or buy the subassemblies? What is the difference between the two alternatives?
A) Buy; savings = $89,000 
B) Buy; savings = $7,000 
C) Make; savings = $1,000 
D) Make; savings = $203,000

Quizplus · Accepted Answer

Cost to buy: 6,000 × $144.00 = $864,000
Cost to make: [($54.00 + $35.00 + $40.00) × 6,000 + $89,000] = $863,000
Cost savings = $864,000 - $863,000 = $1,000; make the subassemblies

Rubium Micro Devices Currently Manufactures a Subassembly for Its Main