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Tex's Manufacturing Company can make 100 units of a necessary component part with the following costs:
Direct materials $120,000
Direct labor 25,000
Variable overhead 45,000
Fixed overhead 30,000
If Tex's Manufacturing Company can purchase the component externally for $190,000 and only $5,000 of the fixed costs can be avoided, what is the correct make-or-buy decision?
Image for Tex's Manufacturing Company can make 100 units of a necessary component part with the following costs: Direc
a) Make and save $5,000.
b) Make and save $15,000.
c) Buy and save $15,000.
d) Buy and save $5,000.

Answer :

hoangkhangpham94
The answer is C.
We compare between the 2 plans ( making vs buying) for explanation.
Making: you will have to incur $190,000 variable cost and $30,000 fixed cost. Total cost is $220,000
Buying: Variable cost can be avoided. Cost incurs for buying is $190,000. Besides, we save $5,000 fixe cost => fixed cost only at $25,000. Total cost $215,000.
=> Saving $5K if we buy instead of making

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