Laskowski Company manufactures a part for its production cycle. The annual costs per unit for 5,000 units of the part are as follows: Per Unit Direct materials $3.00 Direct labor 5.00 Variable factory overhead 4.00 Fixed factory overhead 2.00 Total costs $14.00 The fixed factory overhead costs are unavoidable. Hendricks Company has offered to sell 5,000 units of the same part to Laskowski Company for $14 per unit. The facilities currently used for the part could be used to make 5,000 units annually of a new product that would contribute $5 a unit to fixed expenses. No additional fixed costs would be incurred with the new product. Laskowski Company should ________. A) make the part to save $5,000 B) make the part to save $15,000 C) make the new product and buy the part to save $5,000 D) make the new product and buy the part to save $15,000

[tex]\left[\begin{array}{cccc}&Produce&Buy&Differential\\$Variable Cost&60,000&70,000&10,000\\$Fixed Cost&10,000&10,000&0\\$Use of free capacity&&-25,000&-25,000\\$Total Cost&70,000&55,000&-15,000\\\end{array}\right][/tex]

Variable cost:

5,000 units x (3materials + 5 labor + 4 overhead) = 60,000

Fixed Cost unavoidable 5,000 x 2 = 10,000

This cost will be a burden even if we buy the part

And we have the use of the free capacity:

5,000 units x $5 contribution = 25,000

this reduce the total cost of the part