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.
$$\begin{array} { | l | r | } \hline \text { Direct materials } & \$ 60,000 \\\hline \text { Direct labor } & 165,000 \\\hline \text { Manufacturing overhead } & \underline { 375,000 } \\\hline \text { Total } & \$ 600,000 \\\hline\end{array}$$
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 profits change if 15,000 of Part QT34 are purchased from Xu?
b.At what price would Fortune be indifferent to Xu's offer?