The Fortune Company Produces 15,000 Units of Part QT34 Annually

Essay

The Fortune Company produces 15,000 units of Part QT34 annually at a total cost of $600,000.
$$\begin{array} { l r } \text { Direct materials } & \$ 60,000 \\\text { Direct labor } & 165,000 \\\text { Marmufacturing overhead } & 375,000 \\ \text { Total } & \$ 600,000 \\\end{array}$$
Manufacturing overhead is 36% variable. The Xu Company has offered to supply all 15,000 units of Part QT34 per year for $35 per unit. If Fortune accepts the offer, $8 per unit of the fixed overhead would be avoided. In addition, some of Fortune's leased facilities could be vacated, reducing lease payments by $90,000 per year.
Required:
a. By how much would Fortune's operating profits change if 15,000 of Part QT34 are purchased from Xu?
b. At what price would Fortune be indifferent to Xu's offer?