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:
Each pillow consists of 4 parts and the total direct materials cost per pillow is $3.50.
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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.