Question: W.T. Ginsburg Engine Company manufactures part ACT30107 used in several of its engine models. Monthly production costs for 1100 units are as follows: Direct materials

W.T. Ginsburg Engine Company manufactures part ACT30107 used in several of its engine models. Monthly production costs for 1100 units are as follows:

Direct materials

$44,000

Direct labor

9500

Variable overhead costs

33,500

Fixed factory overhead

19,000

Total costs

$106,000

It is estimated that 6% of the fixed overhead costs assigned to ACT30107 will no longer be incurred if the company purchases ACT30107 from the outside supplier. W.T Ginsburg Engine Company has the option of purchasing the part from an outside supplier at $96.75 per unit.

If the company accepts the offer from the outside supplier, what is the monthly avoidable costs (costs that will no longer be incurred) total ?

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