SleepyHeads produces luxury pillows and bedding for hotels. Historically, SleepyHeads has manufactured their own cases and covers for the pillows and comforters they sell. However, a comforter manufacturer has recently approached SleepyHeads with an offer to produce their comforter covers for them for $70 per cover.
SleepyHeads incurs the following costs in the production of the comforter covers:
$\bullet$$25 for direct materials
$\bullet$$15 for direct labor
$\bullet$$20 for variable overhead
$\bullet$$5 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 comforter covers were purchased from the outside supplier?

Question

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The Answer of SleepyHeads produces luxury pillows and bedding for hotels. Historically, SleepyHeads has manufactured their own cases and covers for the pillows and comforters they sell. However, a comforter manufacturer has recently approached SleepyHeads with an offer to produce their comforter covers for them for $70 per cover.
SleepyHeads incurs the following costs in the production of the comforter covers:
$\bullet$$25 for direct materials
$\bullet$$15 for direct labor
$\bullet$$20 for variable overhead
$\bullet$$5 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 comforter covers were purchased from the outside supplier?

SleepyHeads Produces Luxury Pillows and Bedding for Hotels ∙\bullet∙ $25 for Direct Materials

SleepyHeads Produces Luxury Pillows and Bedding for Hotels $\bullet$ $25 for Direct Materials