ProPrinters Uses Part 87A in the Production of Colour Printers

question 32

Multiple Choice

ProPrinters uses part 87A in the production of colour printers. Unit manufacturing costs of part 87A are as follows:
ProPrinters uses 100,000 units of 87A per year. Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12. Fixed overhead is unavoidable. $\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$
-Refer to the Figure.Suppose that ProPrinters discovers that other costs will increase by $7,000 per year if the component is purchased rather than made internally.What is the financial effect of this make-or-buy decision?

• A)make the part because it will save $100,000 over buying it
• B)buy the part because it will save $100,000 over making it
• C)make the part because it will save $107,000 over buying it
• D)buy the part because it will save $107,000 over making it

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