Question
The Dubs Division of Fast Company (the parent company) produces wheels for off-road sport vehicles. Dubs has two products, 1 and 2. The two products
The Dubs Division of Fast Company (the parent company) produces wheels for off-road sport vehicles. Dubs has two products, 1 and 2. The two products only differ in how they are marketed. Product 1 is sold in bulk to customizing shops, while Product 2 is sold directly to consumers. Dub's estimated operating data for the year follows. Product 1: Revenues ... $300,000; Var Mfg ... $160,000; Var G&A ... $40,000; CM ... $100,000; Fixed Mfg ... $24,000; Fixed G&A ... $36,000; Op. Profits ... $40,000; Unit Sales ... 1,000. Product 2: Revenues ... $400,000; Var Mfg ... $160,000; Var G&A ... $60,000; CM ... $180,000; Fixed Mfg ... $32,000; Fixed G&A ... $48,000; Op. Profits ... $100,000; Unit Sales ... 1,000. Unless otherwise stated assume the fixed costs given above are allocated costs and unavoidable. To simplify this example, assume Dubs is operating below its capacity of 2,500 units and it is producing and selling 1,000 units each of P1 and P2. As part of the manufacture of wheels Dubs also manufactures a set of wheel (lug) nuts for each wheel. A supplier has offered to sell Dubs 2,000 sets of wheel nuts for $30 per set. The costs of the wheel nuts are included in the cost of the wheels. The accounting records for Dubs assigns the following costs to the manufacture of a wheel nut set: Direct Materials -> $12.00; Direct Labor -> $8.00; and Variable Mfg. OH -> $9.00. At the current level of production, fixed manufacturing costs traceable to the wheel nuts amount to $12,000 per year in total and relate to machinery that could be sold to another company. What is the total amount Dubs would save per year by accepting the suppliers offer? If it would be more expensive to buy from the supplier express your answer as a negative number such as -2000.
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