During the current year, CompWorld produced 40,000 computer keyboards, incurring

Question

During the current year, CompWorld produced 40,000 computer keyboards, incurring the following unit costs: $20 in direct materials, $24 in direct labor, $8 in variable overhead, $10 in fixed overhead, $6 in variable administrative expenses, and $4 in fixed selling and administrative expenses. An outsider had offered to produce keyboards for $48 each. Assuming the factory space would have otherwise been idle, acceptance of the outside offer would have

a. saved the company $400,000.
b. saved the company $240,000.
c. lost the company $160,000.
d. lost the company $400,000.

Explanation / Answer

C = 40,000*(20 + 24 +10) = 2,160,000 O = 40,000*48 = 1,920,000 saving of 240,000

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