Tex's Manufacturing Company can make 100 units of a necessary component part with the following costs: $$\begin{array} { l r }
\text { Direct Materials } & \$ 120,000 \
\text { Direct Labor } & 25,000 \
\text { Variable Overhead } & 45,000 \
\text { Fixed Overhead } & 30,000
\end{array}$$
-If Tex's Manufacturing Company can purchase the component externally for $190,000 and only $5,000 of the fixed costs can be avoided, what is the correct make-or-buy decision?

Question

Tex's Manufacturing Company can make 100 units of a necessary component part with the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 120,000 \
\text { Direct Labor } & 25,000 \
\text { Variable Overhead } & 45,000 \
\text { Fixed Overhead } & 30,000
\end{array}$$
-If Tex's Manufacturing Company can purchase the component externally for $190,000 and only $5,000 of the fixed costs can be avoided, what is the correct make-or-buy decision?

Quizplus · Accepted Answer

If Tex's Manufacturing Company purchases the component externally, it will save $190,000 - $185,000 = $5,000.

Tex's Manufacturing Company Can Make 100 Units of a Necessary