Question

Part U67 is used in one of Broce Corporation's products. The company's Accounting Department reports the following costs of producing the 15,000 units of the part that are needed every year.

		Per Unit
	Direct materials	$18.00
	Direct labor	$23.00
	Variable overhead	$10.00
	Fixed overhead		$240,000

An outside supplier has offered to make the part and sell it to the company for $58.00 each. If this offer is accepted, twenty percent (25%) of the fixed overhead costs would be avoided.  

What is the total cost that will be eliminated of Broce accepts the offer from the outside supplier?

What is the effect on operating income if Broce accepts the offer from the outside supplier?

Answer 1

The answer has been presenetd in the supporting sheet. For detailed answer refer to the supporting sheet.