Question

The James Manufacturing Co. manufactures part #81199 for use in producing a mountain bike. The costs per unit for 20,000 units of part #81199 are as follows:
Direct materials ................. $6
Direct labor ....................... 30
Variable overhead ............. 12
Fixed overhead ................. 16
$64
Kelley Manufacturing has offered to sell James 20,000 units of part #81199 for $60 per unit. The company will buy the part from Kelley if the savings total $250,000. If the part is purchased from the outside supplier, James will realize savings of $9 per part for fixed overhead. Furthermore, the released facilities could be leased for additional revenue.

Required
What amount of lease payment must be charged to reach the required $250,000 savings? What qualitative factors should be considered before making a final decision? Why?



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  • CreatedMarch 11, 2015
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