Direct materials $60,000
Direct labor 165,000
Manufacturing overhead 375,000
Manufacturing overhead is 36% variable. The Roseland Corporation has offered to supply all 15,000 units of QT34 per year for $35 per unit. If Gorga accepts the offer, $8 per unit of the fixed overhead would be avoided. In addition, some of Gorga's leased facilities could be vacated, reducing lease payments by $90,000 per year.
By how much would Gorga's profits change if 15,000 of part QT34 are purchased from Roseland?
At what price would Gorga be indifferent to Roseland's offer?
This question was asked on Aug 31, 2011.
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