Question 31 Montel Firm is considering whether to outsource the manufacture of subcomponent JXY. The accounting department provides the following cost information for manufacturing 10,000 units of subcomponent JXY per month. Direct materials costs Direct labour costs Variable overhead Fixed overhead* $38,000 28,000 14,000 12,000 *Fixed overhead includes $4,000 supervisor's salary. International Firm agrees to supply Montel with 10,000 units per month for a total cost of $123,000. If subcomponent JXY is outsourced, Montel will be able to increase the production and sales of its final product by 1,000 units per month; the product is sold for $100 per unit and its average variable costs per unit are $65. 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).) Incremental Costs (Savings) Make Buy Based on your analysis, what decision should management make? Management should decide to JXY as it would cost an additional $ If they were to the units. Would the decision be different if Montel has the opportunity to produce and sell 2,000 units with the facilities currently being used to manufacture subcomponent JXY