Frederick Co If Frederick Can Buy 5,000 Units from an Outside Supplier

question 37

Multiple Choice

Frederick Co. is thinking about having one of its products manufactured by an outside supplier. Currently, the cost of manufacturing 5,000 units follows: $$\begin{array} { l r } \text { Direct material } & \$ 62,000 \\\text { Direct labor } & 47,000 \\\text { Variable factory overhead } & 38,000 \\\text { Fired factory overhead } & 52,000\end{array}$$ If Frederick can buy 5,000 units from an outside supplier for $130,000, it should:

• A) Buy the product because the total incremental costs of manufacturing are greater than $130,000.
• B) Make the product because factory overhead is a sunk cost.
• C) Make the product because the cost of direct material plus direct labor of manufacturing is less than $130,000.
• D) Make the product because current factory overhead is less than $130,000.
• E) Buy the product because total fixed and variable manufacturing costs are greater than $130,000.

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