?

Managerial Accounting

Free Version

Upgrade subject to access all content

Easy

Calculating Costs of Make vs. Buy

MGRACT-8VTCKE

Klesko, Inc. has been experiencing the following costs when it produces 12,000 units of a subassembly:

Direct materials: \$108,000
Direct labor: \$72,000
Fixed overhead: \$100,000

The fixed overhead represents the cost of insurance, taxes and depreciation on the manufacturing plant allocated to this product on the basis of machine hours used in the manufacturing process. A supplier offers to sell Klesko an identical subassembly for \$18 per unit. Klesko has no alternative plans for use of this space. If Klesko makes the product, it would be

A

$114,000 better off

B

$36,000 better off

C

$64,000 worse off

D

$60,000 better off