(Answered) Option a purchase 10000 items per year at a fixed price of

Management Studies

Option A: Purchase 10,000 items per year at a fixed price of $8.50 per item.

Option B: Manufacture 10,000 items per year, using available capacity in the factory. Cost estimates are direct materials = $5.00 per item and direct labor = $1.50 per item. Manufacturing overhead is allocated at 200% of direct labor(= $3.00 per item).

Should the item be purchased or manufactured? Also, what are the total costs of options A and B.

Should the item be purchased or manufactured? What is the total cost of Option A and total cost of Option B?

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