Your company makes BBQ's from scratch - that is to say, you currently...
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Accounting
Your company makes BBQs from scratch that is to say, you currently make all of the components for the BBQs from their raw materials sheet metal, paint, nuts & bolts, etc.
Component A of which you make units per month, costs you $ in variable costs per unit and $ per unit in fixed costs, for a total cost of $ per unit based on the units per month and your latest accounting records.
A supplier has offered to sell you units per month of component A for $ per unit. Should you accept?
Question options:
No don't accept the offer. You cannot save the fixed costs even though your variable costs will be eliminated.
Yes. You will save $ie per unit by accepting the offer from the supplier
Cannot answer this question without further examination of what fixed costs can be shed if the offer is accepted
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