The Freemont Company uses 2,500 units of Part 501 each year. The full manufacturing cost of one unit of Part 501 at this volume is:
An outside supplier has offered to sell Freemont unlimited quantities of Part 501 at a unit cost of $10.00. If Freemont accepts this offer, it can eliminate 60 percent of the fixed costs assigned to Part 501. Furthermore, the space devoted to the manufacture of Part 501 can be rented to another company for $5,000 per year.
Determine in dollars, the increase or decrease of annual profits from Freemont accepting the offer of the outside supplier.

Question

The Freemont Company uses 2,500 units of Part 501 each year. The full manufacturing cost of one unit of Part 501 at this volume is:
  An outside supplier has offered to sell Freemont unlimited quantities of Part 501 at a unit cost of $10.00. If Freemont accepts this offer, it can eliminate 60 percent of the fixed costs assigned to Part 501. Furthermore, the space devoted to the manufacture of Part 501 can be rented to another company for $5,000 per year.
Determine in dollars, the increase or decrease of annual profits from Freemont accepting the offer of the outside supplier.

Quizplus · Accepted Answer

The Answer of The Freemont Company uses 2,500 units of Part 501 each year. The full manufacturing cost of one unit of Part 501 at this volume is:
  An outside supplier has offered to sell Freemont unlimited quantities of Part 501 at a unit cost of $10.00. If Freemont accepts this offer, it can eliminate 60 percent of the fixed costs assigned to Part 501. Furthermore, the space devoted to the manufacture of Part 501 can be rented to another company for $5,000 per year.
Determine in dollars, the increase or decrease of annual profits from Freemont accepting the offer of the outside supplier.

The Freemont Company Uses 2,500 Units of Part 501 Each