Jordan Company Manufactures a Part for Its Production Cycle The Jordan Company Has Been Approached by a Supplier Who

Essay

Jordan Company manufactures a part for its production cycle. The costs per unit for 20,000 units of this part are as follows: $$\begin{array} { l l } \text { Direct materials } & \$ 15 \\\text { Direct labor } & 12 \\\text { Variable factory overhead } & 20 \\\text { Unavoidable fixed factory overhead } & \underline { 18 } \\\text { Total cost } & \underline { \$ 65 }\end{array}$$ The Jordan Company has been approached by a supplier who claims it can sell Jordan Company 20,000 units of the same part for $940,000.
Required:
a. Assuming there is no alternative use for the facilities, how much money would Jordan Company save by buying the part?
b. Assuming the facilities can be rented out for $10,000 per year, should Jordan Company buy the part, and if so, how much money would be saved?
c. Are there any other factors Jordan Company should consider?