The following is Ajax's product cost report for manufacturing 1,000 units of component A-103. A local firm has offered to sell Ajax this same component for $32 per unit, and Ajax currently is deciding whether to continue making the component or to buy the component from the local firm. Ajax will need 500 units of A-103 for during the next six more months (Ajax will then introduce a new model of its product that contains a redesigned version of component A-103, B-103). Ajax's accountant informs you that the decision to make or buy the component will not affect the firm's total outflow for fixed overhead costs.
Materials ..............$12.00 per unit
Direct labor .............9.00
Variable overhead...... 4.50 .....................50% of labor cost
Fixed overhead.......... 9.00.................... 100% of labor cost
Total ..........$34.50 per unit.
Required:
How much does Ajax save or lose by making the component for the next 6 months?