Question

Oriole, Inc. currently manufactures a wicket as its main product. The costs per unit are as follows: Direct materials and direct labor $17 Variable overhead 5 Fixed overhead 8 Total $30 Saran Company has contacted Oriole with an offer to sell it 4900 of the wickets for $24 each. If Oriole makes the wickets, variable costs are $22 per unit. Fixed costs are $8 per unit; however, $5 per unit is unavoidable. Should Oriole make or buy the wickets?

Answer 1

Oriole should buy the wickets.

Step-by-step explanation:

The variable cost of producing wickets is $22/unit.

The fixed cost of production is $8/unit.

The total cost of producing wickets is $30/unit.

Saran company offers to sell 4900 units of wickets at $24.

If wickets are purchased it will cost $24/unit.

Since cost is lower when buying, Oriole should buy wickets.