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Novak Firm is considering whether to outsource the manufacture of subcomponent JXY. The accounting department provides the following cost information for manufacturing 11,700 units of
Novak Firm is considering whether to outsource the manufacture of subcomponent JXY. The accounting department provides the following cost information for manufacturing 11,700 units of subcomponent JXY per month. Fixed overhead includes $5,600 supervisor's salary. International Firm agrees to supply Novak with 11,700 units per month for a total cost of $119,900. If subcomponent JXY is outsourced, Novak will be able to increase the production and sales of its final product by 1,160 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. Prepare an incremental analysis for subcomponent JXY. (If an amount reduces the incremental costs then enter with a negative sign preceding the number e.g. 15,000 or parenthesis, e.g. (15,000). While alternate approaches are possible, irrelevant fixed costs should be included in both options when solving this problem.)
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