Decision Making on Net Income of a business
Express Corporation can either manufacture a component part of its product or buy the part from an outside supplier. The cost of manufacturing one unit of the component part is Direct Materials $1 Direct Labor $1.50 Variable Overhead $0.75 Fixed Overhead (allocated) $0.90 = $4.15. The outside supplier had offered to sell the part to Express Corp for $3.95 per unit. Annual usage of the part is 200,000 units. If Express buys the part the vacated factory space can be rented out for $7,000 per month. Compute the change in Express Corporations 2007 Net Income if it decides to buy the part.