Textel Is Thinking About Having One of Its Products Manufactured

question 65

Multiple Choice

Textel is thinking about having one of its products manufactured by a subcontractor.Currently,the cost of manufacturing 1,000 units follows:
$\begin{array}{lr}\text { Direct material } & \$ 45,000 \\\text { Direct labor } & 30,000 \\\text { Factory overhead ( } 1 / 3 \text { is variable) } & 98,000\end{array}$

If Textel can buy 1,000 units from a subcontractor for $100,000,it should:

• A) Make the product because current factory overhead is less than $100,000.
• B) Make the product because the cost of direct material plus direct labor of manufacturing is less than $100,000.
• C) Buy the product because the total incremental costs of manufacturing are greater than $100,000.
• D) Buy the product because total fixed and variable manufacturing costs are greater than $100,000
• E) Make the product because factory overhead is a sunk cost.

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