Question
Kramer Company makes 5,700 units per year of a part called an axial tap for use in one of its products. Data concerning the unit
Kramer Company makes 5,700 units per year of a part called an axial tap for use in one of its products. Data concerning the unit production costs of the axial tap follow: |
Direct materials | $ | 52 | ||
Direct labor | 27 | |||
Variable manufacturing overhead | 25 | |||
Fixed manufacturing overhead | 25 | |||
Total manufacturing cost per unit | $ | 129 | ||
An outside supplier has offered to sell Kramer Company all of the axial taps it requires. If Kramer Company decided to discontinue making the axial taps, 40% of the above fixed manufacturing overhead costs could be avoided. Assume that direct labor is a variable cost.
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