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Solomon Company manufactures 30,000 components per year. The manufacturing cost per unit of the components follows:
40. Solomon Company manufactures 30,000 components per year. The manufacturing cost per unit of the components follows: Direct materials $10, Direct labor $8, Variable overhead $4, and General Fixed overhead *$3 for a Total unit cost $25.
**Assume that the fixed overhead reflects the allocated cost of Solomon's manufacturing facility to this component.
Solomon Company manufactures many different types of components, which will still be manufactured if Solomon Company buys the XYZ Component. An outside supplier has offered to sell the component to Solomon for $23.
Required: Answer all the parts to the question! Show your work
1. What is the relevant(incremental) cost to make a unit?
2. What is the effect on income if Solomon purchases (buys) the 30,000 components from the outside supplier? (Give the total dollar amount of the change in income/loss and whether it is an increase or decrease in income) From a financial point of view shouldSolomon buy from the outsider or make it internally? Assume the manufacturing of other components will not change and do not take into account the impact on employees.
