Company accepts the outside suppliers offer

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Reference no: EM131224107

Foto Company makes 50,000 units per year of a part it uses in the products it manufactures. The cost per unit of this part is shown below:

direct materials .............. $12.00

direct labor .................. 10.10

variable overhead ............. 6.50

allocated fixed overhead ...... 9.60

total ......................... $38.20

An outside supplier has offered to sell Foto Company 50,000 of these parts for $37.60 per unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin earned on this other product would be $310,000 per year.

Calculate the decrease in company profits if Foto Company accepts the outside suppliers offer.

Reference no: EM131224107

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