State Co. produces 10,000 units of product annually. The cost per unit of product is direct materials, $8; direct labor, $24; variable manufacturing overhead, $24. Additionally, the company incurs $160,000 of fixed manufacturing costs annually. City Incorporated, an outside supplier, offers to provide State with all the units it needs at $60 per unit. The fixed manufacturing costs will not change whether State produced the units themselves or purchases them from City State should: Buy from City since the relevant cost to make it is $72. Produce the units themselves since the relevant cost to make it is $56. Buy from City since the relevant cost to make it is $48. Product the units themselves since the relevant cost to make it is $48.
State Co. produces 10,000 units of product annually. The cost per unit of product is direct materials, $8; direct labor, $24; variable manufacturing overhead, $24. Additionally, the company incurs $160,000 of fixed manufacturing costs annually. City Incorporated, an outside supplier, offers to provide State with all the units it needs at $60 per unit. The fixed manufacturing costs will not change whether State produced the units themselves or purchases them from City State should: Buy from City since the relevant cost to make it is $72. Produce the units themselves since the relevant cost to make it is $56. Buy from City since the relevant cost to make it is $48. Product the units themselves since the relevant cost to make it is $48.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
State Co. produces 10,000 units of product annually. The cost per unit of product is direct materials, $8; direct labor, $24; variable manufacturing overhead , $24. Additionally, the company incurs $160,000 of fixed manufacturing costs annually. City Incorporated, an outside supplier, offers to provide State with all the units it needs at $60 per unit. The fixed manufacturing costs will not change whether State produced the units themselves or purchases them from City State should:
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Buy from City since the relevant cost to make it is $72.
|
|
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Produce the units themselves since the relevant cost to make it is $56.
|
|
|
Buy from City since the relevant cost to make it is $48.
|
|
|
Product the units themselves since the relevant cost to make it is $48.
|
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