Spahr Company Produces a Part That Is Used in the Manufacture

question 113

Multiple Choice

Spahr Company produces a part that is used in the manufacture of one of its products.The unit manufacturing costs of this part,assuming a production level of 5,000 units,are as follows: $$\begin{array} { | l | r | } \hline \text { Direct materials } & \mathbf { \$ 2 } \\\hline \text { Direct labor } & 4 \\\hline \text { Variable manufacturing overhead } & 3 \\\hline \text { Fixed manufacturing overhead } & 1 \\\hline \text { Total cost } & \$ 10 \\\hline & \\\hline \text { The Exed overhead costs are unavaidable. } & \\\hline\end{array}$$
-Assume Spahr Company can purchase 5,000 units of the part from Allgood Company for $13.50 each,and the facilities currently used to make the part could be used to manufacture 5,000 units of another product that would have a $6 per unit contribution margin.If no additional fixed costs would be incurred,what should Spahr Company do?

• A)Make the new product and buy the part to earn an extra $2.50 per unit contribution to profit.
• B)Make the new product and buy the part to earn an extra $1.50 per unit contribution to profit.
• C)Continue to make the part to earn an extra $1.50 per unit contribution to profit.
• D)Continue to make the part to earn an extra $5.50 per unit contribution to profit.

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