Problem
Hanson, Inc. makes 10,000 units per year of a part called a prositron for use in one of its products. Data concerning the unit production costs of the prositron follow.
Direct materials $250
Direct labor 125
Variable manufacturing OH 50
Fixed manufacturing OH 150
Total $575
An outside supplier has offered to sell Hanson, Inc. all of the prositrons it requires. If Hanson, Inc. decided to discontinue making the prositrons, 20% of the above fixed manufacturing overhead costs could be avoided.
Required: Assume Hanson, Inc. has no alternative use for the facilities presently devoted to production of the prositrons. If the outside supplier offers to sell the prositrons for $425 each, should Hanson, Inc. accept the offer? Fully support your answer with appropriate calculations.