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Blossom Corporation currently manufactures a subassembly for

Blossom Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows:

Direct materials$1
Direct labor10
Variable overhead5
Fixed overhead8
Total$24

Funkhouser Company has contacted Blossom with an offer to sell it 3,200 of the subassemblies for $17 each. If Blossom buys the subassemblies, $2 of the fixed overhead per unit will be allocated to other products.

Should Blossom make or buy the subassemblies?

Answer:

Blosson Should Buy and Save $5 per subassemblies

Explanation

Cost to Make = $24 - 2 = $22
Cost to Buy = $17
Cost saving (in Buying) = $22 - 17 = $5

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