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Question - Marquette Company currently produces all the components of its lamps. Another firm has offered to supply the lamp shades at $6 each. Marquette's total cost per lamp shade is as follows:
Direct materials $3.50
Direct labor $0.70
Variable overhead $1.90
Fixed overhead $3.20
The fixed overhead is based on production of 3,000 lamp shades, and none of it would be eliminated if Marquette accepted the offer. Should Marquette accept this offer? How will the profit of the company change if Marquette accepts the offer?
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