Chapter 12 - Homework 2 Satchmo incorporated has a need for 1,000 units per month of part 2029. Presently the firm is producing these parts with the following cost per unit, based on normal production of 1,000 units per month: Part 2029 Direct materials Direct labor Variable Overhead $25.00/unit $15.00/unit $30.00/unit $50.00/unit $120.00/unit Fixed Overhead A vendor has offered to sell the units to Satchmo at a cost of $100/unit. Of the fixed cost assigned to Part 2029, $40 is an allocation of common fixed factory overhead that will continue in total regardless of the firm's decision. The remaining $10 per unit of the fixed cost is a direct fixed cost that can be avoided by purchasing the parts from the vendor. 1. By how much will costs increase or decrease if the firm decides to purchase the goods from the vendor? 2. Satchmo is presently operating at capacity. If the part is purchased, Satchmo can increase production of all of its product lines increasing contribution margin by $45,000. By how much will income increase or decrease if the part is purchased and production of the other products increases