Rochester Company Makes a Product Called Z3 as Part of Its

question 86

Multiple Choice

Rochester Company makes a product called Z3 as part of its manufacturing process.The variable costs of making Z3 are as follows:
Direct materials $8
Direct labor $12
Variable overhead $20
The Toronto Corp. has offered to sell 10,000 units of Z3 to Rochester at a price of $40 per unit. If Rochester agrees to this deal, Rochester will also be able to reduce its fixed costs by $50,000. Rochester should:

• A) Make Z3: The savings are $50,000.
• B) Make Z3: The savings are $100,000.
• C) Buy Z3: The savings are $100,000.
• D) Buy Z3: The savings are $50,000.
• E) There is no difference in profits between making or buying Z3.

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