On the average, 6,000 decorative enameled trays are transferred into the Finishing Department of the Home Products Corporation with prior department costs of $112,000. Of these trays, on the average, 5,500 units are transferred out of the department to Finished Goods and 500 are lost in production with no salvage value. The work in process inventory remains constant. Monthly departmental costs include: labor—$33,000 and overhead—$16,500.

The department is presently operating at full capacity. A study has shown that all the spoilage is due to defects in materials added in the prior department. The defects cannot be detected until the work is completed in the Finishing Department. A better quality of materials can be purchased for an additional $2 per unit of goods in the prior department. It is estimated that this would reduce the spoiled units in the Finishing Department from an average of 500 to an average of 200 each month.

1. Compute the unit cost of each tray based on the materials presently used.

2. Compute the unit cost of each tray if the more expensive materials are used.

3. Should the more expensive materials be purchased? Explain.