Answer:
Part A
Purchasing the product would result in saving of $25000, if the fixed overhead of $405000 can be avoided.
Part B
Making the product would result in saving of $5000.
Explanation:
It is important to consider only the relevant cost i.e. those cost which will not be incurred if a particular decision is made and will incur if the other option is chosen.
Part A
Purchasing the product would result in saving of $25000, if the fixed overhead of $405000 can be avoided.
The Relevant cost of manufacturing the product and the purchase price are as computed below in the second image.
Part B
Making the product would result in saving of $5000.
