Growe Company Manufactures Sewing Machines and Requires 30,000 Units of a Component

Growe Company manufactures sewing machines and requires 30,000 units of a component that is used in the manufacturing process. If Growe buys the part from Zigler Brothers the plant will be idle. Of the fixed, 55% overhead will continue regardless of the decision. The cost to buy the part from Zigler is $46. The unit cost to make the part is: $$\begin{array} { l r } \text { Direct materials } & \$ 12 \\\text { Direct labour } & 20 \\\text { Variable overhead } & 12 \\\text { Average fixed overhead } & 10 \\\quad \text { Total } & \$ 54\end{array}$$ Which alternative is more profitable and by what amount?

A) Buy, $150,000
B) Make, $150,000
C) Buy, $75,000
D) Make, $75,000

Correct Answer:

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