Answer:
The correct decision is to buy the component.
Explanation:
We need to calculate the manufacturing cost of the product and then compare it to the purchase price and the fixed cost after purchase.
Manufacturing Cost:
Direct Material $119,000
Direct Labor $24,000
Variable Overhead $53,000
Fixed Overhead $30,000
Total cost $226,000
Purchasing cost:
Purchase price $195,000
Fixed cost $6,000
Total cost $201,000
As the cost to purchase price is lower than the component manufactured, so, Bonita’s Manufacturing Company should buy this component to save cost.
