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Nifty Car manufactures doors that it uses for one of its components in its new green automobile. The annual
costs to manufacture 40,000 of these doors are:
Direct Material
$200,000
Direct Labor
40,000
Variable Overhead
80,000
Fixed Overhead
320,000
Mackenzie Door Corporation has offered to provide the annual door needs for Nifty at $14 per door. If Nifty
accepts this offer, fixed overhead will be reduced to $192,000 for the year. In addition, Nifty has no alternative
use for the idle facilities if the decision was made to go with Mackenzies offer. Based on this information,
would Nifty be better off to make the doors or buy the doors and by how much?
a.
$48,000 better to buy
b.
$48,000 better to make
c.
$112,000 better to buy
d.
$112,000 better to make
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