6 Oriole Company Has Offered to Sell This Part to Cardinal

6 $$\begin{array} { | l | r | } \hline \text { Cost to Cardinal to make the part: } & \\\hline \text { Direct materials } & \$ 4 \\\hline \text { Direct labour } & 16 \\\hline \text { Variable manufacturing overhead } & 8 \\\hline \text { Fixed manufacturing overhead } & 10 \\\hline & \$ 38 \\\hline \text { Cost to buy the part from } & \\\hline \text { the Oriole Company } & \$ 36 \\\hline\end{array}$$ Oriole Company has offered to sell this part to Cardinal company for $36 each. If Cardinal buys the part from Oriole instead of making it, Cardinal would not have any use for the released capacity. In addition, 60% of the fixed manufacturing overhead costs will continue regardless of what decision is made. Assume that direct labour is an avoidable cost in this decision. In deciding whether to make or buy the part, the total relevant costs to make the part are:

A) $720,000.
B) $640,000.
C) $560,000.
D) $760,000.

Correct Answer:

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