should janeiro make the deal 423653

Janeiro Skate, Inc. currently manufactures the wheels that it uses for its in line skates. The annual costs to manufacture the 150,000 wheels needed each year are as follows:

Total Cost
Direct material $ 165,000

Direct labor 45,000

Variable overhead 60,000
Fixed overhead 300,000

Total $ 570,000

Kasba Rubber Company has offered to provide Janeiro with all of its annual wheel needs for $3.50 per wheel. If Janeiro accepts this offer, 75% of the fixed overhead above could be totally eliminated. Also, Janeiro would be able to rent out the freed up space and could generate $72,000 of income annually.

Here are my calculations…..

Direct material<?xml:namespace prefix = o ns = “urn:schemas microsoft com:office:office” /> $ 165,000.00 Direct labor $ 45,000.00 Variable overhead $ 60,000.00 Variable Cost $ 270,000.00 Fixed overhead (75%) $ 225,000.00 Total Variable Cost $ 495,000.00 Per unit variable cost $ 3.30 Per unit purchase price $ 3.50 Saving per unit $ (0.20) Saving in production $ (3,000.00) Rent revenue $ 72,000.00 Total savings $ 69,000.00

Is this a wise deal for Janeiro to take? I don’t see them saving any money per unit or in production. But they are gaining $69k.