Sleep Tight Company Manufactures Pillows Using an Activity-Based Costing System

Multiple Choice

Sleep Tight Company manufactures pillows using an activity-based costing system. The following information is provided for the month of June:
$$\begin{array} { | l | l | l | l | } \hline \text { Activity } & \begin{array} { l } \text { Estimated Indirect } \\\text { Activity Costs }\end{array} & \text { Allocation Base } & \begin{array} { l } \text { Estimated Quantity of } \\\text { Allocation Base }\end{array} \\\hline \text { Materials handling } & \$ 3,150 & \text { Number of parts } & 4,200 \text { parts } \\\hline \text { Assembling } & \$ 13,860 & \text { Number of parts } & 4,200 \text { parts } \\\hline \text { Packaging } & \$ 2,730 & \text { Number of pillows } & 1,050 \text { pillows } \\\hline\end{array}$$ Each pillow consists of 4 parts and the total direct materials cost per pillow is $3.50.
If the cost to purchase the same pillow from a supplier is $21.00, what should Sleep Tight do to maximize profits?

A) Continue to manufacture the pillow.
B) Since the cost to manufacture the pillow is also $21.00, the company would make the same profit whether it bought the pillow or manufactured it.
C) Purchase the pillow from the supplier.
D) Close down the business.