Gonzalez Company Produces a Part That Is Used in the Manufacture

question 123

Multiple Choice

Gonzalez Company produces a part that is used in the manufacture of one of its products.The annual costs associated with the production of 5,000 units of this part are as follows:
$\begin{array}{ll}\text { Direct materials } & \$ 100,000 \\\text { Direct labor } & 56,000 \\\text { Variable factory overhead } & 72,000 \\\text { Fixed factory overhead } & \underline{168,000} \\\text { Total costs }&\$396,000\end{array}$
Of the fixed factory overhead costs,$72,000 are avoidable.Another company has offered to sell 5,000 units of the same part to Gonzalez for $70.00 per unit.The facilities currently used to make the part can be rented out to another manufacturer for $72,000 per year.What should Gonzalez Company do?

• A) Make the part to save $22,000.
• B) Make the part to save $50,000.
• C) Buy the part and rent the facilities to save $22,000.
• D) Buy the part and rent the facilities to save $72,000.

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