Refer to the information for Blasingham Company above. All of the fixed overhead is common fixed overhead. An outside supplier has offered to sell the part to Blasingham for $ 11. There is no alternative use for the facilities currently used to produce the part.
Blasingham Company is currently manufacturing Part Q108, producing 35,000 units annually. The part is used in the production of several products made by Blasingham. The cost per unit for Q108 is as follows:
Direct materials ........... $ 6.00
Direct labor ............2.00
Variable overhead .........1.50
Fixed overhead ..........3.50
Total.............. $ 13.00
Required:
1. Conceptual Connection: Should Blasingham make or buy Part Q108?
2. What is the most Blasingham would be willing to pay an outside supplier?
3. If Blasingham buys the part, by how much will income increase or decrease?