Rouser Company makes 30,000 mowers each year. To date, all components have been

Question

Rouser Company makes 30,000 mowers each year. To date, all components have been made in house. All fixed costs are unavoidable. Recently, Dexter Fabrication offered to supply Rouser with the metal handles for the mowers for $5 each. Rouser analyzed the cost of the handles and came up with the following per unit information:
Direct Materials $1.60
Direct Labor 0.50
Variable overhead 1.75
Fixed overhead 1.30

A. If Rouser accepts Dexter's offer, operating income will be $_____________________ Higher or Lower?

B. What is the highest price that Rouser would pay an outside company for the handles?

(I will rate FOR ALL ANSWERED QUESTIONS, Thank you for all your help....)

Explanation / Answer

Rouser Company In House Dexter Fabrication Mowers 30000 30000 Cost Price Direct Material $         48,000.00 $                                       -   Direct Labour $         15,000.00 $                                       -   Variable Overhead $         52,500.00 $                                       -   Fixed Overhead $         39,000.00 $                       39,000.00 Buying Cost $                     150,000.00 Total Cost $       154,500.00 $                     189,000.00 (A) If Rouser Accept Dexter offers its operating income will be reduced by $34,500 (B) The highest price the Rouser would pay for the offer will be $1,54,500

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