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

question 121

Multiple Choice

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?

• A)Buy and save $5,000
• B)Make and save $5,000
• C)Make and save $15,000
• D)Buy and save $15,000

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Definitions:

Standard Variable Cost

The budgeted, per-unit cost of variable elements of production, such as materials and labor, under normal operating conditions.

Direct Materials

The cost of raw materials that can be directly traced to the production process.

Materials Price Variance

The difference between the actual cost of materials used in production and the expected standard cost, which can indicate changes in material costs over time.

Particular Product

A specific item produced by a company, distinguished by its unique characteristics, as opposed to a general category of products.