Beacon Industries, Inc. thinking about having one of its products manufactured by a subcontractor. Currently , the cost of manufacturing 1,000 units follows : Direct material $45,000
Direct labor 30,000
Factory overhead (30 % is variable ) 98,000

If Beacon can buy 1,000 units from a subcontractor for $ 100,000 , it should:

It is cheaper to buy the product.

Explanation:

Giving the following information:

Production:

Direct material $45,000

Direct labor 30,000

Factory overhead (30 % is variable ) 98,000

Buy:

Total cost= $100,000

I will assume that none of the fixed overhead avoidable. Therefore, we will take into account only the variable overhead.

Total variable production cost= 45,000 + 30,000 + (98,000*0.3)

Total variable production cost= $104,400

It is cheaper to buy the product.