Reference no: EM132823683

Sahara Co. makes 12,000 units per year of a part called G21 for use in one of its final products. Data concerning the unit production costs of G21 as follows:

Direct materials............................................................... $142
Direct labor..................................................................... 80
Variable manufacturing overhead................................... 48
Fixed manufacturing overhead....................................... 320
Total manufacturing cost per unit................................... $590

An outside supplier offered to sell Sahara Co. all of the G21 it requires. If Sahara Co. decided to discontinue making the G21, 20% of the above fixed manufacturing overhead costs could be avoided/saved.

Required:

Problem 1: Assume Sahara Co. has no alternative use for the facilities presently devoted to production of the G21. If the outside supplier offers to sell the G21 part for $360 each, should Sahara Co. accept the offer? Fully support your answer with appropriate calculations.