Reference no: EM133078659

Question - The Blue Spruce Company manufactures 5,700 units of a part that could be purchased from an outside supplier for $16 each. Blue Spruce'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.

If Blue Spruce could lease the manufacturing facilities to another company for $25,700 per year, what would be the net total cost to outsource production of the part?

Should Blue Spruce outsource production of the part given the opportunity to lease the facilities?