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Should xyz accept the offer

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Reference no: EM132603335

XYZ Incorporated manufactures part A11 to use in the production of motorized bicycles. Please see the table below for production requirements:

Total units of Part A11            50,000 units

Direct materials                     $4.50

Direct labour                         $22.25

Variable Overhead                  $4.50

Fixed Overhead                      $18.00

Total cost per part                 $49.25

Big Apple Production has agreed to supply the total number of part A11 required for $42. If XYZ agrees, the unused space will be used as rental income for an annual amount of $145,000. XYZ has also determined that two-thirds of the fixed overhead applied to part A11 will be reallocated to other divisions.

Required:

Question 1: Should XYZ accept the offer? Show your work.

Reference no: EM132603335

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