The Fortune Company Produces 15,000 Units of Part QT34 Annually

question 84

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?

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Definitions:

Mutually Exclusive

Describes two events that cannot occur at the same time. The occurrence of one event means the other cannot occur.

Independent Events

Two or more events where the occurrence of one event does not affect the probability of the other events occurring.

Dependent Events

Events whose occurrence or outcome is influenced by another event happening.

Mutually Exclusive

Two events that cannot occur simultaneously, meaning the occurrence of one event excludes the possibility of the other.