Waiters, Inc. has been manufacturing10,000 units of part 2050 per month, which is used in manufacturingone of its products. At this level of production, the cost per unitto manufacture part 2050 follows:
Directmaterials $10.00
Directlabor 25.00
Variableoverhead 13.00
Fixedoverhead 12.00
Total $60.00
Westbrook Company has offered the sellWaiters 10,000 units of part 2050 for $55 a unit. Waiters hasdetermined that it could use the facilities presently used tomanufacture part 2050 to manufacture produce RAC, which wouldgenerate an additional contribution margin per month of $50,000.Waiters also has determined that one-third of the fixed overheadwill be incurred even if it purchases part 2050 from Westbrook andmakes product RAC.
Required:
Determine whether ornot Waiters should purchase from Westbrook. Assume that Waiterswould take the opportunity to make product RAC.
