Taylor Inc.manufactures 12,000 units of a part used in its production to manufacture guitars.The annual production activities related to this part are as follows: Best Guitars Inc.has offered to sell 12,000 units of the same part to Taylor for $22 per unit.If Taylor were to accept the offer,some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000.Moreover,$4 per unit of the fixed overhead applied to the part would be totally eliminated.
-What should Taylor's decision be,and what is the total cost savings that would result?
A)Make,$60,000
B)Buy,$60,000
C)Make,$78,000
D)Buy,$78,000

Question

Taylor Inc.manufactures 12,000 units of a part used in its production to manufacture guitars.The annual production activities related to this part are as follows:  Best Guitars Inc.has offered to sell 12,000 units of the same part to Taylor for $22 per unit.If Taylor were to accept the offer,some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000.Moreover,$4 per unit of the fixed overhead applied to the part would be totally eliminated.
-What should Taylor's decision be,and what is the total cost savings that would result?
A)Make,$60,000 
B)Buy,$60,000 
C)Make,$78,000 
D)Buy,$78,000

Quizplus · Accepted Answer

Making the part would cost $60,000, while buying it would cost $78,000. Therefore, Taylor should make the part to save $18,000.