Question
Bonita Industries manufactures widgets. Embree Company has approached Bonita with a proposal to sell the company widgets at a price of $135000 for 100000 units.
Bonita Industries manufactures widgets. Embree Company has approached Bonita with a proposal to sell the company widgets at a price of $135000 for 100000 units. Bonita is currently making these components in its own factory. The following costs are associated with this part of the process when 100000 units are produced:
Direct materials | $ 46500 | |
Direct labor | 43500 | |
Manufacturing overhead | 60000 | |
Total | $150,000 |
The manufacturing overhead consists of $23000 of costs that will be eliminated if the components are no longer produced by Bonita. From Bonitas point of view, how much is the incremental cost or savings if the widgets are bought instead of made?
$22000 incremental cost
$22000 incremental savings
$15000 incremental savings
$15000 incremental cost
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