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Question
Frederick Co. is thinking about having one of its products manufactured by a subcontractor.Currently, the cost of manufacturing 5,000 units follows:
| Direct material | $62,000 |
| Direct labor | 47,000 |
| Variable factory overhead"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6.. | 38,000 |
| Factory overhead | 52,000 |
If Frederick can buy 5,000 units from a subcontractor 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.
Answer
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