Question
Montel Firm is considering whether to outsource the manufacture of subcomponent JXY. The accounting department provides the following cost information for manufacturing 10,300 units of
Montel Firm is considering whether to outsource the manufacture of subcomponent JXY. The accounting department provides the following cost information for manufacturing 10,300 units of subcomponent JXY per month.
Direct materials costs
$39,800
Direct labour costs
29,300Variable overhead
17,100Fixed overhead*
13,700
*Fixed overhead includes $5,600 supervisor's salary.
International Firm agrees to supply Montel with 10,300 units per month for a total cost of $117,700. If subcomponent JXY is outsourced, Montel will be able to increase the production and sales of its final product by 1,080 units per month; the product is sold for $100 per unit and its average variable costs per unit are $80. The supervisor's salary will be eliminated if subcomponent JXY is outsourced.
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