The management of Hepner Industries has been evaluating whether the company should continue manufacturing a component or buy it from an outside supplier. A $100 cost per component was determined as follows:
Hepner Industries uses 4,000 components per year. After Goudge Corporation submitted a bid of $80 per component, some members of management felt they could reduce costs by buying from outside and discontinuing production of the component. If the component is obtained from Goudge Corporation, Hepner Industries' unused production facilities could be leased to another company for $50,000 per year.
Required:
Definitions:
Warranty Expense
The cost associated with the obligation of a company to repair or replace its product if it is found to be defective within a certain period.
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