Golden Company Manufactures a Part for Its Production Cycle The Fixed Factory Overhead Costs Are Unavoidable

question 38

Multiple Choice

Golden Company manufactures a part for its production cycle.The annual costs per unit for 10,000 units of the part are as follows:
$\begin{array}{ll}&\text { Per Unit }\\\text { Direct materials } & \$ 20.00 \\\text { Direct labor } & 15.00 \\\text { Variable factory overhead } & 6.00 \\\text { Fixed factory overhead } & \underline{10.00}\\\text { Total costs }&\$51.00\end{array}$
The fixed factory overhead costs are unavoidable.Olson Company has offered to sell 10,000 units of the same part to Golden Company for $55 per unit.The facilities currently used to make the part could be used to make 10,000 units per year of a new product that has a contribution margin of $20 per unit.No additional fixed costs would be incurred with the new product.Golden Company should ________.

• A) make the part to save $40,000
• B) make the part to save $140,000
• C) make the new product and buy the part to save $60,000
• D) make the new product and buy the part to save $140,000

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