Reference no: EM132990774

The Culver Company manufactures 4,100 units of a part that could be purchased from an outside supplier for $ 16 each. Culver's costs to manufacture each part are as follows:

Direct materials $ 4
Direct labor $3
Variable manufacturing overhead $6
Fixed manufacturing overhead $10
Total $ 23

All fixed overhead is unavoidable and is allocated based on direct labor. The facilities that are used to manufacture the part have no alternative uses.

Problem (a) If Culver could lease the manufacturing facilities to another company for $ 24,100 per year, what would be the net total cost to outsource production of the part?

Problem (b) Should Culver outsource production of the part given the opportunity to lease the facilities?