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Problem
The Radial Tyre manufacturing company currently makes inner mesh for use in finished tyres. It requires 3,000 of inner mesh each month. NuSteel has offered to provide inner mesh for $33 per unit. If the mesh was outsourced there would be savings in Fixed Overhead of $5,000 per month. Radial Tyres costs per unit are:
$/per unit
Materials
10
Direct Labour
15
Variable Overheads
12
Allocated Fixed Overhead
6
What would be the net saving or costs to outsource to NuSteel?
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