Reference no: EM133012080

Question - Stregobor Corp produces all the parts it uses to manufacture its products. The following costs per unit were incurred in manufacturing 75,000 units of Part B99: Direct materials $3.50

Direct labour 2.00

Variable overhead 1.50

Fixed overhead 6.00

A supplier has offered to sell 75,000 units of part B99 to Stregobor for $12 per unit. If Stregobor accepts the offer, fixed overhead could be reduced by 50% per unit. In addition, the facilities used to produce B99 could be used to manufacture Part C182 for which Stregobor has been unable to meet current demand. Sales of C182 should increase by 30%. The most recent income statement for part C182 is as follows:

Sales $360,000

Variable costs 168,000

Fixed costs 120,000

Operating income 72,000

Required -

a) Calculate the change in Stregobor's incremental income if the supplier's offer is accepted.

b) Should the supplier's offer be accepted?