Question

Hanna Company estimates the following cost data for the coming month
Total units needed	10,000
Produce in house costs:	Total Costs
Rental of equipment	$12,000
Direct materials	9,000
Direct labor	15,000
Variable overhead	6,000
Fixed overhead (non-avoidable)	24000
Acquiring from the market costs:
Purchase cost	41,000
According the previous data, the company should

	1.	Produce in house (make)
	2.	Acquire from the market (buy)
	3.	Indifferent to make or buy
	4.	Neither make nor buy

Answer 1

	Cost of making	Cost of Buying	Increase /Decrease in income
Rental of equipment	12,000	0	12,000
Direct materials	9,000	0	9,000
Direct labor	15,000	0	15,000
Variable overhead	6,000	0	6,000
Fixed overhead (non - avoidable)	24,000	24,000	0
Purchase cost	0	41,000	-41,000
Total cost	$ 66,000	$ 65,000	$ 1,000

Cost of Buying is $ 1,000 less than cost of making, hence the company should acquire from the market.

Second option is correct.

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