Konrade’s Engine Company manufactures

by | Mar 18, 2020 | Uncategorized

Konrade’s Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1,000 units are as follows:

Direct materials $40,000

Direct labor 10,000

Variable overhead costs 30,000

Fixed overhead costs 20,000

Total costs $100,000

It is estimated that 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier. Konrade’s Engine Company has the option of purchasing the part from an outside supplier at $85 per unit.

If Konrade’s Engine Company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total

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