Reference no: EM132565192

Flora Grove makes a variety of bags and accessories in colorful prints. Flora is looking at options to help her expand and become more profitable. A local fabric shop has offered to make 1,000 of Flora's most popular tote bags for a price of $45 each.

Flora currently makes the bags herself, with the following unit costs:

Direct Materials$5

Direct Labor$34

Variable Overhead$3

Fixed overhead$4

Total unit cost$46

Question 1: If Flora buys the bags, she would be able to eliminate 25% of her fixed costs, but the other 75% would remain.

Flora should

Option 1: buy the tote bags, because it would be less expensive by $1 per unit.

Option 2: make the tote bags, because it would be less expensive by $2 per unit.

Option 3: make the tote bags, because it would be less expensive by $3 per unit.

Option 4: buy the tote bags, because it would be less expensive by $2 per unit.