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Question
Bannister Co. is thinking about having one of its products manufactured by a subcontractor.Currently, the cost of manufacturing 1,000 units follows:
| Direct material | $45,000 |
| Direct labor | 30,000 |
| Factory overhead (30% is variable) | 98,000 |
If Bannister can buy 1,000 units from a subcontractor for $100,000, it should:
A.Make the product because current factory overhead is less than $100,000.
B.Make the product because the cost of direct material plus direct labor of manufacturing is less than $100,000.
C.Buy the product because the total incremental costs of manufacturing are greater than $100,000.
D.Buy the product because total fixed and variable manufacturing costs are greater than $100,000.
E.Make the product because factory overhead is a sunk cost.
Answer
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