SoftSeats produces chairs and couches for reception areas and executive suites. Historically, SoftSeats has manufactured their own cushions for the chair they sell. However, a cushion manufacturer has recently approached SoftSeats with an offer to produce their cushions for them for $45 per cushion.
SoftSeats incurs the following costs in the production of the seat cushions: $10 for direct materials, $20 for direct labor, $10 for variable overhead, and $10 for fixed overhead. Management is wondering whether they should accept the offer.
What would be the increase or decrease in per-unit costs if the cushions were purchased from the outside supplier?

Question

SoftSeats produces chairs and couches for reception areas and executive suites. Historically, SoftSeats has manufactured their own cushions for the chair they sell. However, a cushion manufacturer has recently approached SoftSeats with an offer to produce their cushions for them for $45 per cushion. 
SoftSeats incurs the following costs in the production of the seat cushions: $10 for direct materials, $20 for direct labor, $10 for variable overhead, and $10 for fixed overhead. Management is wondering whether they should accept the offer.
What would be the increase or decrease in per-unit costs if the cushions were purchased from the outside supplier?

Quizplus · Accepted Answer

The Answer of SoftSeats produces chairs and couches for reception areas and executive suites. Historically, SoftSeats has manufactured their own cushions for the chair they sell. However, a cushion manufacturer has recently approached SoftSeats with an offer to produce their cushions for them for $45 per cushion. 
SoftSeats incurs the following costs in the production of the seat cushions: $10 for direct materials, $20 for direct labor, $10 for variable overhead, and $10 for fixed overhead. Management is wondering whether they should accept the offer.
What would be the increase or decrease in per-unit costs if the cushions were purchased from the outside supplier?

SoftSeats Produces Chairs and Couches for Reception Areas and Executive