Your company produces 1,000 units of a necessary component with the following costs ...
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Accounting
Your company produces 1,000 units of a necessary component with the following costs
Direct Materials
24,000
Direct Labor
16,000
Variable Overhead
4,000
Fixed Overhead
7,000
The company could avoid $3,000 in fixed overhead costs and another product could be made that would increase profit contribution by $8,000 if the components were acquired externally ($43 per unit). Management decided to manufacture the product to increase net income by $20,000.
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