Question
Iota Company manufactures a component used in its main product. During the current year, the costs to produce 20,000 units of this component were $225,000,
Iota Company manufactures a component used in its main product. During the current year, the costs to produce 20,000 units of this component were $225,000, consisting of: Variable (per unit) Fixed Direct Materials $ 4.00 Direct Labor $ 2.00 Manufacturing Overhead $ 1.50 $ 75,000 $ 7.50 Another company has offered to manufacture the 20,000 components for Iota for $12.00 each. If Iota buys the components, all variable and 30% of the fixed costs are avoidable, and the company can rent out the space currently used to manufacture the components for $40,000 per year. What is the financial advantage (disadvantage) to Iota of making the parts? ($ 2,500) $15,000 $27,500 ($25,000)
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