Reuben’s Deli currently makes rolls for deli sandwiches it produces. It uses 30,000 rolls annually in...
Reuben’s Deli currently makes rolls for deli sandwiches it produces. It uses 30,000 rolls annually in the production of deli sandwiches.
The costs to make the rolls are:
Materials $0.24 per roll
Labor 0.40 per roll
Variable overhead 0.16 per roll
Fixed overhead 0.20 per roll
A potential supplier has offered to sell Reuben the rolls for $0.90 each. If the rolls are purchased, 30% of the fixed overhead could be avoided. If Reuben accepts the offer, what will the effect on profit be?
Homework Answers
Relevant cost of production of 1 roll = $0.24 + 0.40 + 0.16 + 0.20*30%
= $0.86 per unit
Profit will be decrease by = (0.90-0.86)*30000 = $1200
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