Smith Company manufactures widgets. Richardson Company has approached Smith with a proposal to sell the company one of the components used to make widgets at a price of $100,000 for 50,000 units. Smith is currently making these components in its own factory. The following costs are associated with this part of the process when 50,000 units are produced:
Direct material $ 54,000
Direct labor 20,000
Manufacturing overhead 70,000
Total $144,000
The manufacturing overhead consists of $32,000 of costs that will be eliminated if the components are no longer produced by Smith. The remaining manufacturing overhead will continue whether or not Smith makes the components. What is the amount of avoidable costs if Smith buys rather than makes the components?