The Norran Company Needs 15,000 Units of a Certain Part

question 55

Multiple Choice

The Norran Company needs 15,000 units of a certain part to use in its production cycle. If Norran buys the part from Waterloo Company instead of making it, Norran could not use the released facilities in another activity; thus, all of the fixed overhead applied will continue regardless of what decision is made. Accounting records provide the following data: Cost to Norran to make the part:
Direct materials, $3
Direct labor, $12
Variable overhead, $13
Fixed overhead applied, $8
Cost to buy the part from the Waterloo Company, $27
What should Norran's decision be, and what is the total cost savings that would result?

• A) Buy, $90,000
• B) Buy, $15,000
• C) Make, $90,000
• D) Make, $15,000

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Definitions:

According to Investments

A categorization or analysis based on different types of investments, though "According to Investments" is not a standard accounting term.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against a fixed asset since it was put into use.

Cash

Money in the form of currency that is used to conduct transactions.