Problem: Jackson Company manufactures a part for its production cycle. The costs per unit for 20,000 units of this part are as follows:
Direct materials $15
Direct labor 12
Variable factory overhead 20
Unavoidable fixed factory overhead 18
Total cost $65
The Jackson Company has been approached by a supplier who claims it can sell Jackson Company 20,000 units of the same part for $940,000.
Required:
1) Assuming there is no alternative use for the facilities, how much money would Jackson Company save by buying the part?
2) Assuming the facilities can be rented out for $10,000 per year, should Jackson Company buy the part, and if so, how much money would be saved?