Lewis Auto Company manufactures a part for use in its production of automobiles. When 10,000 items are produced, the costs per unit are: Direct materials $12 Direct manufacturing overhead $60 Variable manufacturing overhead $24 Fixed manufacturing overhead $32 Total $128 Monty Company has offered to sell Lewis Auto Company 10, 000 units of the part for $120 per unit. The plant facilities could be used to manufacture another part at a savings of $180, 000 if Lewis auto accepts the supplier's offer. In addition, $20 per unit of fixed manufacturing overhead on the original part would be eliminated. Required: a. What is the relevant per unit cost for the original part? b. Which alternative is best for Lewis auto Company? By how much?
Lewis Auto Company manufactures a part for use in its production of automobiles. When 10,000 items are produced, the costs per unit are: Direct materials $12 Direct manufacturing overhead $60 Variable manufacturing overhead $24 Fixed manufacturing overhead $32 Total $128 Monty Company has offered to sell Lewis Auto Company 10, 000 units of the part for $120 per unit. The plant facilities could be used to manufacture another part at a savings of $180, 000 if Lewis auto accepts the supplier's offer. In addition, $20 per unit of fixed manufacturing overhead on the original part would be eliminated. Required: a. What is the relevant per unit cost for the original part? b. Which alternative is best for Lewis auto Company? By how much?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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