Hanson, Inc. makes 1,000 units per year of a part called a prositron for use in one of its products. Data concerning the unit production cost of the prositron follows:
Direct materials $342
Direct labor 80
Variable manufacturing overhead 48
Fixed manufacturing overhead 520
Total manufacturing costs
Per unit $990
An outside supplier has offered to sell Hanson, Inc. all of the prositrons it requires. If Hanson, Inc. decided to discontinue making the prositron, 10% 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 prositron for $850 each should Hanson accept the offer? SHOW YOUR WORK.
