What is the incremental savings of buying the valves

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Reference no: EM13273029

Landmark Coal operates a mine. During July, the company obtained 500 tons of ore, which yielded 250 pounds of gold and 63,700 pounds of copper. The joint cost related to the operation was $500,000. Gold sells for $325 per ounce and copper sells for $0.89 per pound. Allocate the joint costs using relative weight. With these costs, what is the profit or loss associated with Copper?

Howell Corporation produces an executive jet for which it currently manufactures a fuel valve; the cost of the valve is indicated below:



Cost per Unit

Variable costs


Direct material

$900

Direct labor

600

Variable overhead

300





Fixed costs


Depreciation of equipment

500

Depreciation of building

200

Supervisory salaries

300





The company has an offer from Duvall Valves to produce the part for $2,000 per unit and supply 1,000 valves (the number needed in the coming year). If the company accepts this offer and shuts down production of valves, production workers and supervisors will be reassigned to other areas. The equipment cannot be used elsewhere in the company, and it has no market value. However, the space occupied by the production of the valve can be used by another production group that is currently leasing space for $55,000 per year.

What is the incremental savings of buying the valves?

Reference no: EM13273029

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