Case 5 (2 marks, 7min)

Your company produces 1,000 units of a necessary component with the following costs

Direct Materials	SR24,000
Direct Labor	16,000
Variable Overhead	4,000
Fixed Overhead	7,000

The company could avoid SR3,000 in fixed overhead costs and another product couldbe made that would increase profit contribution by SR8,000 if the components wereacquired externally (SR43 per unit). Management decided to manufacture the product to increase net income by SR20,000.

Opinion
Justification