P Company currently manufactures all component parts used in the manufacture of various small appliances.

1. P Company currently manufactures all component parts used in the manufacture of various small appliances. A steel handle is used in three different products. The current year budget for 20,000 handles has the following unit cost:

                        Direct material              $0.60

                        Direct labor                   0.40

                        Variable overhead         0.10

                        Fixed overhead            0.20

                        Total unit cost               $1.30

A steel company has offered to supply 20,000 handles to P Company for $1.25 each, which includes delivery. Should the offer be accepted?

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