Janeiro Skate, Inc. currently manufactures the wheels that it uses for its in-li

Question

Janeiro Skate, Inc. currently manufactures the wheels that it uses for its in-line skates. The annual costs to manufacture the 152,000 wheels needed each year are as follows:

Kasba Rubber Company has offered to provide Janeiro with all of its annual wheel needs for $3.40 per wheel. If Janeiro accepts this offer, 75% of the fixed overhead above could be totally eliminated. Also, Janeiro would be able to rent out the freed up space and could generate $82,000 of income annually.

Calculate the net savings. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

Janeiro Skate, Inc. currently manufactures the wheels that it uses for its in-line skates. The annual costs to manufacture the 152,000 wheels needed each year are as follows:

Explanation / Answer

total variable cost = 159000 + 46000 + 65000 + 225750 = 495750

per unit variabe cost = 3.2615

per unit cost = 3.40

per unit savings = 0.1385

savings in production = 0.1385 * 152000 = 21052

rent = 82000

total savings = 103052

b) purchase cost = 152000 * 3.40 = 516800

c) per unit variabe cost = 3.2615

per unit cost = 3.40

per unit savings = 0.1385

net savings = 0.1385 * 152000 = 21052

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