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Contribution to Profit Question

Could you show me step by step how they came to this answer? I feel like the questions on the tests are framed so differently than anything we've done in the chapter problems that I almost don't even recognize having done anything like this before. This question was on the practice test but could show up on the real test and I don't know how to calculate this.

Lasso Corporation manufactures a variety of appliances which all use Part B89. Currently, Lasso manufactures Part B89 itself. It has been producing

14,000 units of Part B89 annually. The annual costs of producing Part B89 at the level of 14,000 units include:

Direct materials	$ 3.10
Direct labor	$ 8.30
Variable manufacturing overhead	$ 4.10
Fixed manufacturing overhead	$ 3.50
Total cost	$ 19.00

All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier. Assume Lasso can purchase

14,000 units of the part from the Nadal Parts Company for $ 20.30 each, and the facilities currently used to make the part could be used to manufacture 14,000 units of another product that would have a $7 per unit contribution margin. If no additional fixed costs would be incurred, what should Lasso do?

A. Make the new product and buy the part to earn an extra $ 2.20 per unit contribution to profit.

B. Make the new product and buy the part to earn an extra $ 5.70 per unit contribution to profit.

C. Continue to make the part to earn an extra $ 3.50 per unit contribution to profit.

D Continue to make the part to earn an extra $8.30 per unit contribution to profit.

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