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	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 rating: 100% (QA)

Compute the incremental costs for manufacturing 5000 units as follows Therefore total cost incurred for manufacturing the 5000 units is 147000 Explana... View the full answer