"R" Company requires four units of R2 for every unit of D2 that it produces. Currently R2 is made by "R" Company

"R" Company requires four units of R2 for every unit of D2 that it produces. Currently R2 is made by "R" Company, with the following per unit costs in a period when 20,000 units were produced:

                   Direct materials              $6.00

                   Direct labor                     2.50

                   Manufacturing overhead   5.60

                     Total                            14.10

Variable manufacturing overhead is applied at 100% of direct labor cost. The rest of the overhead is fixed. "R" Company will need 20,000 units of R2 for next year's production.

Now, "S" Corporation has offered to supply 20,000 units of $2 at a price of $13.00 per unit. If "R" company accepts the offer, all of the variable costs and $30,000 of the fixed costs will be eliminated.

QUESTION:  Should "R" Company accept the offer from "S" Corporation?

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