Reference no: EM132665714

Blubyu Ltd manufactures Blu ray players and has always produced in-house all necessary parts for them, including casings. The cost per unit of the casings at a production level of 80,000 units is as follows;

Direct Labour $6.00
Direct Materials 3.00
Variable factory overhead 18.00
Fixed factory overhead 6.00
Total Unit Cost $33.00

The fixed factory overhead cost is direct, and half of the direct fixed overhead cost could be eliminated if the casings are purchased rather than produced. An outside supplier has offered to produce and sell to Blubyu Ltd 80,000 casings at a price of $31 per unit.

Required

Problem 1: Should the offer be accepted if there are no alternatives uses for the manufacturing capacity currently being used to produce the casings? Why?