Question
James Company makes 1,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is
James Company makes 1,000 units per year of a part it uses in the products it manufactures.
The unit product cost of this part is computed as follows:
Variable manufacturing cost $41 per unit
Direct fixed salaries $16 per unit
Allocated fixed costs $10 per unit
Unit product cost $67 per unit
From an outside supplier, James could buy all 1,000 units of the part for $60 per unit. If James buys the part from the supplier, the facilities now being used to make the part could be rented for $2,000.
Also, direct fixed salaries will decrease by 75%.
For all 1,000 units together, how much is the net dollar advantage (disadvantage) of purchasing the part rather than making it? (advantage or disadvantage? And how much?).
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