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Caballero Manufacturing acquires unit costs of $15 ($10 variable and $5 fixed) in making a sub-assembly part for its finished product. The supplier offers to make 20,000 of the assembly part at $13.75 per unit. When the offer is accepted, Caballero will save all the variable costs however no fixed costs. 

Instructions: 

Part A: Make an analysis showing the total cost savings, if any, Caballero will realize through buying the part. 

Part B: Caballero Company must _________ the part as total annual costs to make are _________ than the total costs to buy. 

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M915963

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