Swifty Corporation, Inc. can produce 100 units of a component
part with the following costs:
| Direct Materials | $15300 |
| Direct Labor | 6400 |
| Variable Overhead | 16300 |
| Fixed Overhead | 11000 |
If Swifty Corporation can purchase the component part externally
for $44600 and only $4300 of the fixed costs can be avoided, what
is the correct make-or-buy decision?
| Buy and save $6600 |
| Make and save $100 |
| Buy and save $100 |
| Make and save $2300 |
Total cost of making 100 units
Total cost = Direct Materials + Direct Labor + Variable Overhead + Fixed Overhead
= $15,300 + $6,400 + $16,300 + $11,000
= $49,000
Total cost incurred for purchasing 100 units
Total cost = Purchsing cost + unavoidable fixed costs
= $44,600 + ($11,000 - $4,300)
= $44,600 + $6,700
= $51,300
Difference in the cost = Total cost of purchasing - Total cost of making
= $51,300 - $49,000
= $2,300
If Swifty corporation making the units, it saves $2,300.
Make and save $2300 is the correct answer.
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