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Bowie Company manufactures 20,000 units of wheel sets for use in its annual production. Costs are as follows: direct materials are $40,000; direct labor is $50,000; variable overhead is $35,000; and fixed overhead is $70,000. Bieber Company has offered to sell Bowie 20,000 units of wheel sets for $10 per unit. If Bowie accepts the offer, some of the facilities presently used to manufacture wheel sets could be rented to a third party at an annual rental of $15,000. Additionally, $1.50 per unit of the fixed overhead applied to wheel sets would be totally eliminated.
Requirements:
Problem 1: Make an incremental analysis schedule to demonstrate if Bowie should accept Bieber's offer.
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