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What is Grand net advantage to buying the component

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Reference no: EM132708314

Question - Grand Limited currently produces a component of a product with the following per unit production costs:

Direct materials $18

Direct labour 31

Overhead 18

Total production costs $67

Grand Ltd. currently manufactures these components in-house, averaging production of 29020 units each year. A supplier has approached the company offering to supply 29020 units each year at a cost of $48 each.

60% of the overhead is fixed and if Grand Ltd. purchases the components, then 1/3 of the fixed overhead costs would be avoidable.

Required - What is Grand's net advantage to buying the component from the supplier?

a. $342436

b. There is no advantage from buying it from the supplier.

c. $203140

d. $237964

Reference no: EM132708314

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