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Jeff Company produces a part that is used in the manufacture of one of its products. The annual costs associated with the production of 11,000 units of this part are as follows:
Direct materials ………… $ 25,000
Direct labor …………. 34,000
Indirect production costs variable ….. 65,000
Indirect production costs fixed …… 40,000
Total costs ………….. $164,000
A supplier is willing to sell 11,000 units of the part to Jeff Company for $12.50 per unit. When examining the indirect production costs fixed, Jeff Company determines $10,000 is avoidable.
Required:
If there are no alternative uses for the facilities, should Jeff Company take advantage of the supplier’s?
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