Question
Falzoni Fabrication, Inc. (FFI) manufactures 10,000 units of Part M-1 each year for use in its production of another product, but production of the other
Falzoni Fabrication, Inc. (FFI) manufactures 10,000 units of Part M-1 each year for use in its production of another product, but production of the other product will be discontinued at the end of the next year. The following total costs were reported last year:
Direct materials ......................................... . $ 20,000
Direct labor ............................................... . 55,000
Variable manufacturing overhead .............. 45,000
Fixed manufacturing overhead .................. 70,000
Total manufacturing cost ........................... $190,000
Harfoot Pty. Ltd. has offered to sell Falzoni 10,000 units of Part M-1for $18 per unit. If FFI accepts the offer, some of the facilities presently used to manufacture Part M-1could be rented to a third party at an annual rental of $15,000. Additionally, $40,000 of the fixed overhead applied to Part M-1would be totally eliminated. Direct labour consists of workers who are paid by the hour.
Should FFI accept Harfoot's offer? Support and explain your answer.
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