Benitez Company Currently Outsources a Relay Switch That Is a Component

Multiple Choice

Benitez Company currently outsources a relay switch that is a component in one of its products.The switches cost $20 each.The company is considering making the switches internally at the following projected annual production costs: $\begin{array}{ll}\text { Unit-level material cost } & \$3 \\\text { Unit-level labor cost } & \$2 \\\text { Unit-level overhead } & \$1 \\\text { Batch-level set-up cost (5,000 units per batch) } & \$ 25,000 \\\text { Product-level supervisory salaries } & \$ 37,500 \\\text { Allocated facility-level costs } & \$ 20,000\end{array}$ The company expects an annual need for 5,000 switches.If the company makes the product,it will have to utilize factory space currently being leased to another company for $1,500 a month.If the company decides to make the parts,total costs will be:

A) $10,500 more than if the switches are purchased.
B) $27,000 less than if the switches are purchased.
C) $20,000 less than if the switches are purchased.
D) $30,500 more than if the switches are purchased.