The problem I am working on has a manufacturing overhead of $800K. $100K of that

Question

The problem I am working on has a manufacturing overhead of $800K. $100K of that is for a manager's salary. The company is deciding whether to close the division and purchase the unit from a third party. The manager would move into a different division at his same salary rate ($100K). The company would save $80k from not having to hire someone from the outside to fill the manager position in the other division. When figuring out if it makes sense to buy they units rather than make them would you keep the $100K fixed cost as part of the calculation, subtract $80K(since the company would save this amount) OR the fixed cost would now be $20K?

Explanation / Answer

Answer:-

As part of your query, $800 is manufacturing overhead that means variable overhead of factory overhead.

So, $ 100K for manager salary would be treated as Variable overhead

And $80K would be treated as saving in fixed cost

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