Problem
The Radial Tyre manufacturing company currently makes inner mesh for use in finished tyres. It requires 3,000 of inner mesh each month. NuSteel has offered to provide inner mesh for $33 per unit. If the mesh was outsourced there would be savings in Fixed Overhead of $5,000 per month. Radial Tyres costs per unit are:
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$/per unit
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Materials
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10
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Direct Labour
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15
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Variable Overheads
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12
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Allocated Fixed Overhead
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6
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What would be the net saving or costs to outsource to NuSteel?