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Lasso Corporation manufactures Part B89 in its internal processing division. Lasso produces units of Part B89 annually. The annual costs to produce Part B89 at the level of units​ include: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier. Assuming Lasso can purchase units of the part from the Nadal Parts Company for ​each, and the facilities currently used to make the part could be rented out to another manufacturer for a​ year, what should Lasso​ do? A. Make the part and save per unit. B. Buy the part and save per unit. C. Make the part and save per unit. D. Buy the part and save per unit.

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jepessoa

Answer:

Make the part and save $3.00 per unit.

Explanation:

The numbers are missing, so I looked for a similar question to fill in the blanks:

The annual costs to produce Part B89 at the level of 9,000 units include:

  • Direct materials $3.00
  • Direct labor $8.00
  • Variable manufacturing overhead $4.00
  • Fixed manufacturing overhead $3.00  (non-avoidable)
  • Total cost $18.00

All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier. Assuming Lasso Corporation can purchase 9,000 units of the part from the Nadal Parts Company for $20.00 each, and the facilities currently used to make the part could be rented out to another manufacturer for $18,000 a year, what should Lasso Corporation do?

we need to determine how much we can save by buying from Nadal = all avoidable costs can be saved = $18 - $3 = $15 per unit

net cost to buy = $20 - ($18,000 / 9,000) = $20 - $2 = $18 per unit

since the purchase cost is higher than the production costs, Lasso Corporation should keep producing the product.

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