Miller Company Produces a Part That Is Used in the Manufacture

question 63

Multiple Choice

Miller 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: D $\begin{array}{ll}\text { Direct materials } & \$ 108,000 \\\text { Direct labor } & 156,000 \\\text { Variable factory overhead } & 72,000 \\\text { Fixed factory overhead } & \underline{168,000} \\\text { Total costs } & \underline{\$ 504,000} \\\end{array}$ Of the fixed factory overhead costs, $72,000 is avoidable. Assume that Miller Company can buy 5,000 units of the part from another producer for $100.80 each. The current facilities could be used to make 5,000 units of a product that has a contribution margin of $24 per unit. Fixed factory overhead costs to produce this new product would be exactly the same as for the currently produced part. Miller Company should:

• A) continue to make the part and earn an extra $4.80 per unit contribution to profit
• B) buy the part and produce the new product and earn an extra $4.80 per unit contribution to profit
• C) continue to make the part and earn an extra $48,000 in profit
• D) buy the part and produce the new product and earn an extra $24 per unit contribution to profit