Given the following, determine if a buy price of $4.00 per unit for 3,000 units should be accepted or if the company should continue to make the units. Total variable costs of making the units (materials, labor, and overhead) equal $11,100, and total fixed costs are $3,500. Of the fixed costs, $1,500 is avoidable if the units are purchased. Based on price, the company should (make/buy)the units at a net benefit of $.

If the company buys the component, income will increase by $600.

Explanation:

Giving the following information:

Buy:

Purchase price= $4

Make in-house:

Total variable cost= $11,100

Avoidable fixed cost= $1,500

To determine if it is more convenient to buy or make, we need to calculate the total cost of each option:

Buy= 3,000*4=$12,000

Make in-house= 11,100 + 1,500= $12,600

If the company buys the component, income will increase by $600.

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