Bell's Shop Can Make 1,000 Units of a Necessary Component

Bell's Shop can make 1,000 units of a necessary component with the following costs: $\begin{array}{lr}\text { Direct Materials } & \$ 24,000 \\\text { Direct Labor } & 6,000 \\\text { Variable Overhead } & 3,000 \\\text { Fixed Overhead } & ?\end{array}$ The company can purchase the 1,000 units externally for $39,000. The unavoidable fixed costs are $2,000 if the units are purchased externally. An analysis shows that at this external price, the company is indifferent between making or buying the part. What are the fixed overhead costs of making the component?

A) $8,000
B) $6,000
C) $4,000
D) Cannot be determined.

Correct Answer:

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