Madison Company Produces a Part That Is Used in the Manufacture

question 102

Multiple Choice

Madison 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:
$\begin{array}{ll}\text { Direct materials } & \$ 108,000 \\\text { Direct labor } & 156,000 \\\text { Variable factory overhead } & 72,000 \\\text { Fixed factory overhead } & 168,000\\\text { Total costs }&\$504,000\end{array}$
Of the fixed factory overhead costs,$72,000 are avoidable.Middleton Company has offered to sell 5,000 units of the same part to Madison for $87.00 per unit.Assuming there is no other use for the facilities,Madison Company should ________.

• A) make the part to save $24,000
• B) make the part to save $27,000
• C) buy the part to save $24,000
• D) buy the part to save $27,000

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