Barker Company Produces a Part That Is Used in the Manufacture

question 30

Multiple Choice

Barker 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:
Of the fixed factory overhead costs, $60,000 is avoidable.
-Assume that Barker can buy 5,000 units of the part from another producer for $84 each. The current facilities could be used to make 5,000 units of a product that has a contribution margin of $20 per unit. Fixed factory overhead costs to produce this new product would be exactly the same as for the currently produced part. Barker should

• A) continue to make the part and earn an extra $40,000 in profit.
• B) buy the part and produce the new product and earn an extra $4 per unit contribution to profit.
• C) continue to make the part and earn an extra $8 per unit contribution to profit.
• D) buy the part and produce the new product and earn an extra $20 per unit contribution to profit.

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