Houston Ltd. manufacturers a part for its production cycle. The costs per unit for 5,000 units of this part are as follows: $\begin{array}{lr}
\text {Direct materials}&£32\
\text {Direct labour}&40\
\text {Variable overhead}&16\
\text {Fixed overhead}&32\
\text {Total}&£120\
\end{array}$ Johnson Company has offered to sell Houston Ltd. 5,000 units of the part for £112 per unit. If Houston Ltd. accepts Johnson Company's offer, total fixed costs will be reduced to £60,000. What alternative is more desirable and by what amount is it more desirable? $$\begin{array} { l l r }
& \text { Alternative } & \text { Amount } \
a.&\text { Make } & £ 20,000 \
b. &\text { Make } & £ 120,000 \
c.&\text { Buy } & £ 40,000 \
d.&\text { Buy } & £ 100,000 \
e. &\text {Buy } & £ 140,000
\end{array}$$

Question

Houston Ltd. manufacturers a part for its production cycle. The costs per unit for 5,000 units of this part are as follows: $\begin{array}{lr} 
\text {Direct materials}&£32\
\text {Direct labour}&40\
\text {Variable overhead}&16\
\text {Fixed overhead}&32\
\text {Total}&£120\
\end{array}$ Johnson Company has offered to sell Houston Ltd. 5,000 units of the part for £112 per unit. If Houston Ltd. accepts Johnson Company's offer, total fixed costs will be reduced to £60,000. What alternative is more desirable and by what amount is it more desirable? $$\begin{array} { l l r } 
& \text { Alternative } & \text { Amount } \
a.&\text {  Make } & £ 20,000 \
b. &\text { Make } & £ 120,000 \
c.&\text {  Buy } & £ 40,000 \
d.&\text {  Buy } & £ 100,000 \
 e. &\text {Buy } & £ 140,000
\end{array}$$

Quizplus · Accepted Answer

The Answer of Houston Ltd. manufacturers a part for its production cycle. The costs per unit for 5,000 units of this part are as follows: $\begin{array}{lr} 
\text {Direct materials}&£32\
\text {Direct labour}&40\
\text {Variable overhead}&16\
\text {Fixed overhead}&32\
\text {Total}&£120\
\end{array}$ Johnson Company has offered to sell Houston Ltd. 5,000 units of the part for £112 per unit. If Houston Ltd. accepts Johnson Company's offer, total fixed costs will be reduced to £60,000. What alternative is more desirable and by what amount is it more desirable? $$\begin{array} { l l r } 
& \text { Alternative } & \text { Amount } \
a.&\text {  Make } & £ 20,000 \
b. &\text { Make } & £ 120,000 \
c.&\text {  Buy } & £ 40,000 \
d.&\text {  Buy } & £ 100,000 \
 e. &\text {Buy } & £ 140,000
\end{array}$$

Houston Ltd Johnson Company Has Offered to Sell Houston Ltd