37.50 15.00
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:ABC Company manufactures Part AA for use in its production cycle. The costs per unit for
25,000 units for the part are as follows:
Direct materials
P 7.50
Direct labor
37.50
Variable overhead
15.00
Fixed overhead
20.00
XYZ Company has offered to sell ABC Company the 25,000 units needed by the latter for P75
per unit. If ABC Company accepts the offer, the released facilities could be rented out in the
amount of P112,500. In addition, P12.50 per unit of fixed overhead applied to part AA would be
eliminated or avoided.
What alternative is more desirable and by what amount it is more desirable?
1. Buy - P 50,000
2. Make - P50,000
3. Buy - P262,500
4. Make - P 262,500
O 1
O 2
O 3
O 4
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