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Required information [The following information applies to the questions displayed below.) A company produces two products. Product 1 sells for $195 and Product 2
Required information [The following information applies to the questions displayed below.) A company produces two products. Product 1 sells for $195 and Product 2 sells for $150. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 123,000 units of each product. Its average cost per unit for each product at this level of activity are given below Product Product 1 2 Direct materials Direct labor Variable manufacturing overhead Variable selling expenses $ 40 $ 15 34 28 22 20 Traceable fixed manufacturing overhead 30 33 27 23 Common fixed expenses Total cost per unit 30 25 $183 $144 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. Consider each of the following questions separately. 6. Now assume the company expects to produce and sell 70,000 units of Product 1 during the current year. A supplier has offered to manufacture and deliver 70,000 units of Product 1 for a price of $140 per unit. What is the financial advantage (disadvantage) of buying 70,000 units from the supplier instead of making those units?
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