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Jackson Company manufactures a part for its production cycle. The costs per unit for 20,000 units of this part are as follows:

Direct materials $15
Direct labor 12
Variable factory overhead 20
Unavoidable fixed factory overhead 18
Total cost $65

The Jackson Company has been approached by a supplier who claims it can sell Jackson Company 20,000 units of the same part for $940,000.

Required:
a.Assuming there is no alternative use for the facilities, how much money would Jackson Company save by buying the part?

b.Assuming the facilities can be rented out for $10,000 per year, should Jackson Company buy the part, and if so, how much money would be saved?

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Jackson Company manufactures a part for its production cycle. The costs per unit for 20,000 units of this part are as follows:

Direct materials $15
Direct labor 12
Variable factory overhead 20
Unavoidable fixed factory overhead 18
Total cost $65

The ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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