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Question
Textel is thinking about having one of its products manufactured by a subcontractor. Currently, the cost of manufacturing 1,000 units follows:
| Direct material | $45,000 |
| Direct labor | 30,000 |
| Factory overhead (1/3 is variable) | 98,000 |
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.
Answer
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