Johnson Company currently produces 12,000 units of a special microchip. Current unit costs for the microchip are

as follows:

Direct materials                                          $100

Direct labor                                                   15

Factory rent                                                   25

Administrative costs                                      15

General factory overhead (allocated              21

Total                                                           $176

If Johnson decides to buy the special microchip, 60% of the administrative costs would be avoided. All of the company’s items, including the special microchip, are manufactured in the same rented production facility. The company has an offer from a wholesaler that wishes to sell the part to Johnson  for $145 per unit. What will occur if the company accepts the offer? (Will cost be higher or lower?)

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