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Great P Company makes pagers. Currently, Great P purchases 10,000 plastic housings per year from an outside company for $1 each. One of Great P's
Great P Company makes pagers. Currently, Great P purchases 10,000 plastic housings per year from an outside company for $1 each. One of Great P's engineers suggested that the company make its plastic housings in-house. Estimated unit costs are as follows: Direct materials $0.30 Direct labor 0.20 Variable overhead 0.15 Fixed overhead* 0.40 * Fixed overhead is $2,400 per year in equipment costs specifically traceable to the plastic housing line and $1,600 per year in general overhead costs to be allocated to this line If Great P makes the housing in-house, net income will be $ (Higher or Lower)? What is the highest price per unit that Great P would pay an outside company for the housings? Now assume that all of the fixed overhead is allocated fixed overhead and will not be affected by making the product in-house or purchasing it. If Great P makes the housing in-house, net income will be (Higher/Lower)
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