Diamond Brands manufactures cereals. Sander Company has approached Diamond Brands with a proposal to sell the company oatmeal at a price of $16,000. The following costs are associated with production of oatmeal:

Direct material $10,000

Direct labour $6,000

Manufacturing overhead $8,000

The manufacturing overhead consists of $2,000 of variable costs with the balance being fixed costs.

In the space below state which of the following is correct (a, b, c, or d)? Explain why they should make or buy the oatmeal. Show all your work.

a. They should buy the cereal to save $2,000

b. Continue to make the cereal because the incremental cost of buying is $3,000

c. Buy the cereal to save $3,000

d. Continue to make the cereal because the incremental cost of buying is $18,000