A. This answer results from including fixed overhead as an avoidable cost and not including variable overhead as an avoidable cost. Variable overhead is an avoidable cost while fixed over head is not.

B. Since the company has idle capacity, the company would be better off producing the handles as long as the supplier's price is above total variable cost ($1.10). If Cohasset's price is $1.25, then buying the handles would increase the handle cost by $.15 per handle ($1.25 - $1.10).

C. This answer results from including fixed overhead as an avoidable cost. There is no indication that any of the fixed overhead could be avoided if the company buys the handles outside. Therefore, the only avoidable costs the company has are the variable costs. Because the company has idle capacity, it is better off manufacturing the handles unless the supplier's cost is below R&M's variable costs, which it is not.

D. There is no indication that any of the fixed overhead could be avoided if the company buys the handles outside. Therefore, the only avoidable costs the company has are the variable costs. Because the company has idle capacity, it is better off manufacturing the handles unless the supplier's cost is below R&M's variable costs, which it is not.