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Spahr Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 5,000 units, are as follows:
Direct materials
$2.00
Direct labor
$4.00
Variable manufacturing overhead
$3.00
Fixed manufacturing overhead
Total cost
$12.00
The fixed overhead costs are unavoidable.
Erickson Company has offered to sell 5,000 units of the same part to Spahr Company for $11 per unit. Assuming the company has no other use for its facilities, what should Spahr Company do?
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