Zaman Co. is now producing Product X. The companys accounting department reports the following costs of producing 50,000 units of the product X each year:

Direct Materials $2

Direct Labor $1

Variable Overhead $1

Fixed cost $ 1.75* (Expected 50% will save if the company will buy from the outside supplier)

An outside supplier from China offered to sell 50,000 units to Zaman Co. at a price of only $5 each.

Instructions:

Should the company stop producing the product X internally or buy them from the outside supplier? (show your calculation) Zaman Co. is now producing Product X. The companys accounting department reports the following costs of producing 50,000 units of the product X each year:

Direct Materials $2

Direct Labor $1

Variable Overhead $1

Fixed cost $ 1.75* (Expected 50% will save if the company will buy from the outside supplier)

An outside supplier from China offered to sell 50,000 units to Zaman Co. at a price of only $5 each.

Instructions:

Should the company stop producing the product X internally or buy them from the outside supplier? (show your calculation)