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Baxter Doors Company currently produces the doorknobs for the doors it makes and sells. The monthly cost of producing 5,000 doorknobs is as follows: Unit-level materials.................................$16,000 Unit-level labor.......................................30,000 Unit-level overhead....................................4,000 Product-level costs*.................................32,000 Allocated facility-level costs........................20,000 *Twenty percent of these costs can be avoided if the doorknobs are purchased. Wells Company has offered to sell comparable doorknobs to Baxter for $15.20 each. Required a. Should Baxter continue to make the doorknobs? Support your answer with appropriate computations. b. For $24,000 per month, Baxter could lease the manufacturing space to another company. Would this potential cash inflow affect your response to Requirement a? Explain.
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