Figure 12-2. ColorPro uses part 87A in the production of color printers. Unit

Figure 12-2.

ColorPro uses part 87A in the production of color printers. Unit manufacturing costs of
part 87A are:

Direct materials

$8

Direct labor

2

Variable overhead

1

Fixed overhead-common costs

4

ColorPro uses 100000 units of 87A per year. Filbert Company has offered to sell
ColorPro 100000 units of 87A per year for $12. Fixed overhead is unavoidable.

Refer to Figure 12-2. Now suppose that ColorPro discovers that other costs will increase by $7000 per year if the
component is purchased rather than made internally. Should ColorPro make or buy the part?
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