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Musty Engineering Company manufactures part QE767 used in several of its engine models. Monthly production costs for 10,000 units are as follows: Direct materials Direct
Musty Engineering Company manufactures part QE767 used in several of its engine models. Monthly production costs for 10,000 units are as follows: Direct materials Direct labor Variable support costs Fixed support costs $80,000 20,000 50,000 40,000 $190,000 Total costs It is estimated that 20% of the fixed support costs assigned to part QE767 will no longer be incurred if the company purchases the part from the outside supplier. Musty Engineering Company has the option of purchasing the part from an outside supplier at $16 per unit. a. If Musty Engineering Company purchases 10,000 QE767 parts from the outside supplier per month, then its monthly operating income will change by what amount? b. What other factor should be considered before making a decision to outsource the part
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