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Jansung Company manufactures 5,000 telephones per year. The full manufacturing costs per telephone are as follows:
Direct materials $ 2
Direct labor 8
Variable manufacturing overhead 5
Average fixed manufacturing overhead 5
Total $20
Telecom America has offered to sell Jansung Company 5,000 telephones for $20 per unit. If Jansung Company accepts the offer, $12,500 of fixed overhead will be eliminated.
Question 1: Applying differential analysis to the situation, should Jansung Company make or buy the phones?
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