Mickleson Company Produces a Part That Is Used in the Manufacture

Multiple Choice

Mickleson Company produces a part that is used in the manufacture of one of its products.The costs associated with the production of 5,000 units of this part are as follows: $\begin{array}{lr}\text { Direct materials } & \$ 108,000 \\\text { Direct labor } & 156,000 \\\text { Variable factory overhead } & 72,000 \\\text { Fixed factory overhead } & 168,000 \\\text { Total costs } & \$ 504,000\end{array}$ Of the fixed factory overhead costs, $72,000 is avoidable.Assume that Mickleson Company can buy 5,000 units of the part from another producer for $100.80 each.The current facilities could be used to make 5,000 units of a product that has a contribution margin of $24 per unit.Fixed factory overhead costs to produce this new product would be the same as for the currently produced part.Mickleson Company should _____.

A) continue to make the part and earn an extra $48,000 in profit
B) buy the part, produce the new product, and earn an extra $4.80 per unit contribution to profit
C) continue to make the part and earn an extra $4.80 per unit contribution to profit
D) buy the part, produce the new product, and earn an extra $24 per unit contribution to profit