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Should Jackson Company accept this offer

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Reference no: EM132813408

Question - Jackson Company is now making a small part that is used in one of its products. The company's accounting department reports the following per-unit costs of producing the part internally.

Direct materials $15.00

Direct labor 10.00

Variable manufacturing overhead 2.00

Fixed manufacturing overhead, traceable 4.00

Fixed manufacturing overhead, allocated 5.00

Unit product cost $36.00

Depreciation of special equipment represents 75% of the traceable fixed manufacturing overhead cost with supervisory salaries representing the balance. The special equipment has no resale value and does not wear out through use. The supervisory salaries could be avoided if the production of the part were discontinued.

An outside supplier has offered to sell the part to Jackson Company for $30 each, based on an order of 5,000 parts per year.

Should Jackson Company accept this offer, or continue to make the parts internally?

Reference no: EM132813408

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