Reference no: EM131785674

Guggenbiller Corporation currently makes 200,000 units per year of a gasket for use in one of its products. The production manager says that the part costs $3.20 per unit to make. This figure comes from:

Direct materials $0.55

Direct labor 0.20

Variable manufacturing overhead 0.30

Fixed manufacturing overhead 2.15

Total manufacturing cost per unit 3.20

An outside supplier has offered to sell Guggenbiller Corporation all 200,000 gaskets for $1.40 per unit. If Guggenbiller decides to discontinue making the gaskets and start purchasing them, $100,000 of the total fixed manufacturing overhead costs could be avoided. However, shipping (not included in the purchase cost, would be $50,000. An additional profit of $30,000 could be earned through use of the released facilities.

Required: By how much does Guggenbiller's income change if the outside supplier's offer is accepted? Fully support and justify your answer.