The Pixels Corporation produces a component used in the manufacture of one of its best-selling products. The costs associated with the production of 10,000 units of this component are presented in the table above. The PCAOB Corp. offered to sell Pixels 10,000 units of the same part at a price of $36 per unit. Assume that Pixels has no alternative use for the factory facilities that would be released. Based on all of the information above, should Pixels manufacture their own part or outsource to PCAOB? Note that if you agree to outsource, you would save $60,000 in indirect fixed costs.
Direct Materials | $90,000 |
Direct Manufacturing Labor | $130,000 |
Variable Manufacturing |
$60,000 |
Fixed Manufacturing Overhead | $140,000 |
Total Costs | $420,000 |
a. Buy the part from PCAOB because you save $6 per unit
b. Manufacture the part because it saves $6 per unit
c. Make the part because you save $2 per unit
d. Buy the part from PCAOB because you save $60,000
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