Montana Bus Company makes transmissions to be used in motor homes that the company manufactures. The company normally produces 500 transmissions per year and incurs the following costs per unit:

Direct materials	$100
Direct labor	100
Variable manufacturing overhead	25
Fixed manufacturing overhead	75

Allison Transmissions has offered to sell Montana 500 transmissions per year at a price of $250 per unit. If Montana accepts the offer it could eliminate two thirds of the fixed overhead cost applied to the transmission and could earn $25,000 from another product by using the released facilities. What alternative is more desirable, and by what amount?

A. Purchase from outside supplier, better by $37,500

B. Continue to make; better by $25,000

C. Purchase from outside supplier; better by $12,500

D. Continue to make; better by $12,500

Answer rating: 100% (QA)

A purchase from outside supplier better by 37500 Make Buy Direct ma... View the full answer