Carla Vista Water Co. is a leading producer of greenhouse irrigation systems. Currently, the company manufactures the timer unit used in each of its systems. Based on an annual production of 49,500 timers, the company has calculated the following unit costs. Direct fixed costs include supervisory and clerical salaries and equipment depreciation.
Direct materials $11
Direct labor 7
Variable manufacturing overhead 3
Direct fixed manufacturing overhead 8 (30% salaries, 70% depreciation)
Allocated fixed manufacturing overhead 6
Total unit cost $35
Clifton Clocks has offered to provide the timer units to Carla Vista at a price of $ 33 per unit. If Carla Vista accepts the offer, the current timer unit supervisory and clerical staff will be laid off.