Question
Sunland Company manufactures widgets. Embree Company has approached Sunland with a proposal to sell the company widgets at a price of $140000 for 100000 units.
Sunland Company manufactures widgets. Embree Company has approached Sunland with a proposal to sell the company widgets at a price of $140000 for 100000 units. Sunland is currently making these components in its own factory. The following costs are associated with this part of the process when 100000 units are produced:
Direct materials | $ 46500 |
Direct labor | 43500 |
Manufacturing overhead | 60000 |
Total | $150,000 |
The manufacturing overhead consists of $24000 of costs that will be eliminated if the components are no longer produced by Sunland. From Sunlands point of view, how much is the incremental cost or savings if the widgets are bought instead of made?
$26000 incremental cost
$10000 incremental savings
$10000 incremental cost
$26000 incremental savings
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