Cube Manufacturing usually produces its own parts for assembly. The following monthly data are available for one
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Question:
- Cube Manufacturing usually produces its own parts for assembly. The following monthly data are available for one of the parts, Part A31:
Manufacturing costs | |
Variable per unit | $ 6 |
Fixed costs | 15,000 |
Nonmanufacturing costs | |
Variable per unit | 1 |
Fixed costs | 9,000 |
Cube needs 2,000 units of Part A31 every month. An outside supplier offers to deliver that part for $11.50 each. By accepting the offer, Cube can save half of the fixed manufacturing costs and all variable costs, but the fixed nonmanufacturing costs are not affected.
Required:
- Should Cube Manufacturing accept the offer and outsource Part A31? Why?
- If the facility used to produce Part A31 can be leased out to generate a monthly rental income of $3,000, what should Cube Manufacturing do?
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