Hoopster Company Produces a Part That Is Used in the Manufacture

question 29

Multiple Choice

Hoopster Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows: $\begin{array}{ll}\text { Direct materials } & \$ 108,000 \\\text { Direct labor } & 156,000 \\\text { Variable factory overhead } & 72,000 \\\text { Fixed factory overhead } & \underline{168,000} \\\text { Total costs } & \underline{\$ 504,000} \\\end{array}$ Of the fixed factory overhead costs, $72,000 are avoidable. Knight Company has offered to sell 5,000 units of the same part to Hoopster for $86.40 per unit. Assuming there is no other use for the facilities, Hoopster Company should:

• A) make the part to save $4.80 per unit
• B) make the part to save $14.40 per unit
• C) buy the part to save $14.40 per unit
• D) buy the part to save the company $72,000