Scrooge Company Produces a Part That Is Used in the Manufacture

Essay

Scrooge Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 11,000 units of this part are as follows: $\begin{array}{ll}\text { Direct materials } & \$ 25,000 \\\text { Direct labor } & 34,000 \\\text { Variable factory } & 65,000 \\\text { overhead } & \\\text { Fixed factory overhead } & \underline{50,000}\\&\$174,000\end{array}$ Of the fixed factory overhead costs, $9,000 is avoidable. Required:
a. Assuming there is no alternative use for the facilities, should Scrooge Company take advantage of an offer from a supplier who is willing to sell Scrooge Company 11,000 units of the same part for $12.50 per unit?
b. Would your answer to Part A change if the facilities could be rented for $10,000 a year?