Explore BrainMass
Share

Explore BrainMass

    Incremental savings

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Howell Corporation produces an executive jet for which it currently manufactures a fuel valve; the cost of the valve is indicated below:

    Cost per Unit

    Variable costs

    Direct material

    $920

    Direct labor

    600

    Variable overhead

    300

    Total variable costs

    $1,800

    Fixed costs
    Depreciation of equipment

    500
    Depreciation of building

    225

    Supervisory salaries

    300

    Total fixed costs

    1,000
    Total cost

    $2,800

    The company has an offer from Duvall Valves to produce the part for $2,000 per unit and supply 1,000 valves (the number needed in the coming year). If the company accepts this offer and shuts down production of valves, production workers and supervisors will be reassigned to other areas. The equipment cannot be used elsewhere in the company, and it has no market value. However, the space occupied by the production of the valve can be used by another production group that is currently leasing space for $55,000 per year.

    What is the incremental savings of buying the valves?

    © BrainMass Inc. brainmass.com October 10, 2019, 7:19 am ad1c9bdddf
    https://brainmass.com/economics/finance/incremental-savings-576947

    Solution Preview

    Dear student,

    Solution attached with all workings. Please make a note ...

    Solution Summary

    The file computes the incremental savings of buying.

    $2.19