Discuss the below:
Bunny Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 11,000 units of this part are as follows:
Direct materials $25,000
Direct labor 34,000
Variable factory overhead 65,000
Fixed factory overhead 50,000
$174,000
Of the fixed factory overhead costs, $9,000 is avoidable.
Required:
a. Assuming there is no alternative use for the facilities, should Bunny Company take advantage of an offer from a supplier who is willing to sell Bunny Company 11,000 units of the same part for $12.50 per unit?
b. Would your answer to Part A change if the facilities could be rented for $10,000 a year?