Practice question

Jack Austin of A1 Metal Fabrication is a long-time friend of Johns and Jack has been in the metal fabrication business for years. He has developed an excellent reputation for delivering good quality products on time. Jack has offered to supply all of the metal filing cabinets at an average price of $525.00. When John reviews the standard cost figures above ($700) he cannot understand why it wouldnt be better to purchase the cabinets from Jack since Jack would only charge $525. Also, John figures that the company could rent out the vacant space that would be freed up if the company was not producing the cabinets. John estimates the company could receive $5.00 per square foot per year for the vacant space.

Using the standard cost figures shown above of $700 per cabinet, would you accept Jack Austins offer? Show all calculations and list any qualitative issues that should also be addressed.