Frederick Corp makes electric motors for cars
Frederick Corp makes electric motors
Frederick Corp makes electric
Corp makes electric motors for cars
Frederick Corp makes
electric motors for cars
Frederick Corp
Frederick
Frederick Corp makes electric motors for cars.

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Frederick Corp makes electric motors for cars. Currently the company makes all parts for the motors, but recently Frederick received an offer to supply the lithium ion batteries used to make the motors for a price of $190 each. Frederick's estimated costs of making the lithium ion batteries, based on last year's costing data, are as follows: Units produced 2,000 Total costs: Direct materials $145,000 Direct labor $165,000 Manufacturing overhead $200,000 Note that 30% of the overhead above is variable. If the lithium ion batteries are purchased, all of the variable costs can be eliminated and 20% of the fixed overhead cost can be avoided. The space used to produce the lithium ion batteries can be leased to another company for $60,000 per year; however, additional fixed cost of $15,000 will be incurred if the facilities are leased. In addition, eight employees would lose their jobs. The company expects to make 2,500 motors during the next year. The production capacity will handle the increase in output without any increase in fixed costs. What I need to know is how would I compute the change in profit for Frederick if it accepts the offer and buys the lithium ion batteries?

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