Mentol Inc. incurs the following costs to produce 10,000 units of a subcomponent: Direct materials $8,400 Direct labor 11,250 Variable overhead 12,600 Fixed overhead 16,200 An outside supplier has offered to sell Mentol the subcomponent for $2.85 a unit. If Mentol accepts the offer, it could use the production capacity to produce another product that would generate additional income of $3,600. Additionally, $2,200 of the company’s fixed overhead will be avoided. Required: Using Incremental Analysis, advise Mentol Inc as to whether they should continue to make the subcomponent or purchase them from the outside supplier.

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Computation of unit variable cost on producing Direct material Add Direct labour Add V... View the full answer