Question - Talk Company manufactures 25,000 telephones per year. The full manufacturing costs per telephone are as follows:
Direct materials $ 6
Direct labor 20
Variable manufacturing overhead 10
Average fixed manufacturing overhead 11
Total $47
The Telecom America has offered to sell Talk Company 25,000 telephones for $35 per unit. If Talk Company accepts the offer, $260,000 of fixed overhead will be eliminated.
Required: Applying differential analysis to the situation, should Talk Company make or buy the phones? For full credit (or partial credit if you make a mistake) you must show your calculations and label things clearly so I know what you are doing.