Cardi Company manufactures 20,000 units of wheel sets for use in its annual production. Costs are as follows: direct materials are $30,000; direct labor is $70,000; variable overhead is $35,000;
Cardi Company manufactures 20,000 units of wheel
sets for use in its annual production. Costs are as follows: direct materials are $30,000; direct labor is $70,000; variable overhead is $35,000; and fixed overhead is $60,000. Bowie Company has offered to sell Cardi 20,000 units of wheel sets for $9 per unit. If Cardi accepts the offer, some of the facilities presently used to manufacture wheel sets could be rented to a third party at an annual rental of $10,000. Additionally, $1 per unit of the fixed overhead applied to wheel sets would be totally eliminated.
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