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Fizzy Foam Corporation makes 1,000,000 units of its canned party foam. It currently makes the nozzle for the cans. The costs to produce one nozzle are: direct materials $.22; direct labor $.08; variable manufacturing overhead $.15; and fixed manufacturing overhead $.17. An outside supplier, Nancy's Nozzle's, has offered to sell Fizzy Foam all of the nozzles it requires for $.56 each. If Fizzy Foam decided to discontinue making the nozzles and instead buys them from Nancy's Nozzles, 30% of the fixed manufacturing overhead costs could be avoided. Problem 1: Should Fizzy continue to make the nozzles (answer yes or no)?
Problem 2: What is the dollar cost advantage per unit of your decision?
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