Question

Howell Corp produces an executive jet for which it currently manufactures a fuel valve; the cost of the valve is

indicated below The company has an offer from Duvall valves to produce the part for 2,000 per unit and supply 1000 valves (the number needed for coming year) If the company accepts this offer & shuts down production of valves, the production workers & supervisors will be reassigned to to other areas. The equipment cannot be used elsewhere in the company, & it has no market value. However, the space occupied by the production of the valve can be used by another production group that is currently leasing space for $55,000 per year. What is the incremental savings of buying the valves? (answer should be in per unit format and is a positive number)  

Variable Costs  Cost per Unit

Direct material 940

Direct Labor 600

Variable Overhead 300

Fixed cost   

Deprecation of Equip 500

Deprecation of building  300

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