Question - The Tally Company produces 15,000 units of item QT34 annually at a total cost of $600,000.
Manufacturing overhead is 36% variable. The Daisy Company has offered to supply all 15,000 units of QT34 per year for $35 per unit. If Tally accepts the offer, $8 per unit of the fixed overhead would be avoided. In addition, some of Tally's leased facilities could be vacated, reducing lease payments by $90,000 per year.
Required:
a. By how much would Tally's profits change if 15,000 of part QT34 are purchased from Daisy?
b. At what price would Tally be indifferent to Daisy's offer?