Kennedy Company Manufactures a Part for Its Production Cycle The Fixed Factory Overhead Costs Are Unavoidable

question 67

Multiple Choice

Kennedy Company manufactures a part for its production cycle. The costs per unit for 10,000 units of this part are as follows: $\begin{array}{ll}\text { Direct materials } & \$ 20 \\\text { Direct labor } & 15 \\\text { Variable factory overhead } & 16 \\\text { Fixed factory overhead } & \underline{10} \\\text { Total costs } & \$ 61\end{array}$ The fixed factory overhead costs are unavoidable. Assume that Kennedy Company can buy 10,000 units of the part from another producer for $60 each. The facilities currently used to make the part could be rented out to another manufacturer for $100,000 a year. Kennedy Company should:

• A) make the part to save $2.50 per unit
• B) buy the part to save $2.50 per unit
• C) make the part to save $1 per unit
• D) buy the part to save $1 per unit

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