The Southern Bell Company manufactures 2,000 telephones per year. The full manufacturing costs per telephone are as follows:
The Illinois Bell Company has offered to sell Southern Bell Company 2,000 telephones for $15 per unit. If Southern Bell Company accepts the offer, $10,000 of fixed overhead will be eliminated.
Southern Bell should:

Question

The Southern Bell Company manufactures 2,000 telephones per year. The full manufacturing costs per telephone are as follows:
 The Illinois Bell Company has offered to sell Southern Bell Company 2,000 telephones for $15 per unit. If Southern Bell Company accepts the offer, $10,000 of fixed overhead will be eliminated.
Southern Bell should:

Quizplus · Accepted Answer

Relevant cost to manufacture = (2+ 8 + 6) + (10,000 / 2,000) = $21 per unit. By buying the phones, the savings is $6 per phone or $12,000 total.

The Southern Bell Company Manufactures 2,000 Telephones Per Year