Gallagher Company Produces a Part That Has the Following Costs $\$ 8$

question 49

Multiple Choice

Gallagher Company produces a part that has the following costs per unit:
Direct material                                $\$ 8$
Directlabor                                        3
Variable overhead                              1
$\text { Fixed overhead. }$                         $\underline{5}$
Total                                                $\underline{\$17}$

Homeland Corporation can provide the part to Gallagher for $19 per unit.Gallagher Company has determined that 60 percent of its fixed overhead would continue if it purchased the part.However,if Gallagher no longer produces the part,it can rent that portion of the plant facilities for $60,000 per year.Gallagher Company currently produces 10,000 parts per year.Which alternative is preferable and by what margin?

• A)Make-$20,000
• B)Make-$50,000
• C)Buy-$10,000
• D)Buy-$40,000

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