Reference no: EM132540064
The Southern Bell Company manufactures 2,000 telephones per year. The full manufacturing costs per telephone are as follows:
Direct materials $ 2
Direct labor 8
Variable manufacturing overhead 6
Average fixed manufacturing overhead 6
Total $22
The Illinois Bell Company has offered to sell Southern Bell Company 2,000 telephones for $15 per unit. If Southern Bell Company accepts the offer, $10,000 of fixed overhead will be eliminated.
Southern Bell should:
Question 1: Make the telephones; the savings is $2,000
Question 2: Buy the telephones; the savings is $24,000
Question 3: Buy the telephones; the savings is $12,000
Question 4: Make the telephones; the savings is $12,000
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