Tasty Bites produces corn chips.The cost of one batch is below: $$\begin{array} { l r }
\text { Direct materials } & \$ 18 \
\text { Direct labor } & 13 \
\text { Variable overhead } & 11 \
\text { Fixed overhead } & 14
\end{array}$$ An outside supplier has offered to produce the corn chips for $30 per batch.How much will Tasty Bites save if it accepts the offer?

Question

Tasty Bites produces corn chips.The cost of one batch is below: $$\begin{array} { l r } 
\text { Direct materials } & \$ 18 \
\text { Direct labor } & 13 \
\text { Variable overhead } & 11 \
\text { Fixed overhead } & 14
\end{array}$$ An outside supplier has offered to produce the corn chips for $30 per batch.How much will Tasty Bites save if it accepts the offer?

Quizplus · Accepted Answer

Tasty Bites will save the fixed overhead cost of $14 per batch if they accept the offer. The cost of producing in-house is $56 ($18 + $13 + $11 + $14), and the cost from the supplier is $30. The savings is $56 - $30 = $26, but since fixed overhead is not saved, the actual savings is $12 ($26 - $14).

Tasty Bites Produces Corn Chips An Outside Supplier Has Offered to Produce the Corn Chips