Benitez Company Currently Outsources a Relay Switch That Is a Component

Benitez Company currently outsources a relay switch that is a component in one of its products. The switches cost $20 each. The company is considering making the switches internally at the following projected annual production costs: $\begin{array}{llr} \text { Unlt-level materlal cost } &\$3\\ \text { Unit-level labor cost } &\$2\\ \text { Unit-level overhead } &\$1\\ \text { Batch-level set-up cost ( 5,000 units per batch) } &\$25,000\\ \text {Product-level supervisory salaries } &\$37,500\\ \text { allocated facilitv-level costs } &\$20,000\\\end{array}$
The company expects an annual need for 5,000 switches. If the company makes the product, it will have to utilize factory space currently being leased to another company for $1,500 a month. If the company decides to make the parts, total costs will be:

A) $10,500 more than if the switches are purchased.
B) $27,000 less than if the switches are purchased.
C) $20,000 less than if the switches are purchased.
D) $30,500 more than if the switches are purchased.

Correct Answer:

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