Frederick Co If Frederick Can Buy 5,000 Units from an Outside Supplier

Frederick Co. is thinking about having one of its products manufactured by an outside supplier. Currently, the cost of manufacturing 5,000 units follows:
$$\begin{array} { | l | r | } \hline \text { Direct material } & \$ 62,000 \\\hline \text { Direct labor } & 47,000 \\\hline \text { Variable factory overhead } \ldots \ldots \ldots \ldots \ldots \ldots . & 38,000 \\\hline \text { Factory overhead } & 52,000 \\\hline\end{array}$$ If Frederick can buy 5,000 units from an outside supplier for $130,000, it should:

A) Make the product because current factory overhead is less than $130,000.
B) Make the product because the cost of direct material plus direct labor of manufacturing is less than $130,000.
C) Make the product because factory overhead is a sunk cost.
D) Buy the product because total fixed and variable manufacturing costs are greater than $130,000.
E) Buy the product because the total incremental costs of manufacturing are greater than $130,000.

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free