A Company Needs 10,000 Units of a Component Used in Producing

Essay

A company needs 10,000 units of a component used in producing one of its products. The latest internal accounting reports show that the per unit manufacturing cost to be $150.00, variable manufacturing costs of $110.00 and fixed manufacturing cost of $40. The company recently received an offer from another manufacturer to produce the component for $144.00. If it buys the component on the outside 40% of the fixed manufacturing cost can be avoided.
Required:
a. If the company buys the component from the outside supplier at $144.00, what is the impact on income?
b. What price would make the company indifferent between making the component internally and having the outside supplier make it?