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: 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:
$$\begin{array} { | l | l | } \hline \text { Unit-level material cost } & \$ 3 \\\hline \text { Unit-level labor cost } & \$ 2 \\\hline \text { Unit-level overhead } & \$ 1 \\\hline \text { Batch-level set-up cost ( } 5,000 \text { units per batch) } & \$ 25,000 \\\hline \text { Product-level supervisory salaries } & \$ 37,500 \\\hline \text { Allocated facility-level costs } & \$ 20,000 \\\hline\end{array}$$

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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