Reliance Aircraft Corporation currently manufactures a complex hydraulic valve that controls rudder movement in its popular 707 jet aircraft. The unit cost to produce the valve is:
Reliance has an offer from Kennametal Company to supply all 200 of the valves Reliance requires annually for $4,000 per unit. If Reliance accepts the offer and ceases production of the valve, production workers and supervisors will be reassigned to other areas of 707 production. The equipment can't be used elsewhere and has no market value. The factory floor space devoted to the production of the valves, however, can be used by another division of the company that currently leases space elsewhere at an annual cost of $85,000. What is the financial advantage (or disadvantage) to Reliance of accepting Kennametal's offer?

Question

Reliance Aircraft Corporation currently manufactures a complex hydraulic valve that controls rudder movement in its popular 707 jet aircraft. The unit cost to produce the valve is:
 Reliance has an offer from Kennametal Company to supply all 200 of the valves Reliance requires annually for $4,000 per unit. If Reliance accepts the offer and ceases production of the valve, production workers and supervisors will be reassigned to other areas of 707 production. The equipment can't be used elsewhere and has no market value. The factory floor space devoted to the production of the valves, however, can be used by another division of the company that currently leases space elsewhere at an annual cost of $85,000. What is the financial advantage (or disadvantage) to Reliance of accepting Kennametal's offer?

Quizplus · Accepted Answer

The Answer of Reliance Aircraft Corporation currently manufactures a complex hydraulic valve that controls rudder movement in its popular 707 jet aircraft. The unit cost to produce the valve is:
 Reliance has an offer from Kennametal Company to supply all 200 of the valves Reliance requires annually for $4,000 per unit. If Reliance accepts the offer and ceases production of the valve, production workers and supervisors will be reassigned to other areas of 707 production. The equipment can't be used elsewhere and has no market value. The factory floor space devoted to the production of the valves, however, can be used by another division of the company that currently leases space elsewhere at an annual cost of $85,000. What is the financial advantage (or disadvantage) to Reliance of accepting Kennametal's offer?

Reliance Aircraft Corporation Currently Manufactures a Complex Hydraulic Valve That