3)ACCT 2250

Mesily Company makes 20,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows: Direct materials $25.10 Direct labour 18.20 Variable manufacturing 2.40 overhead Fixed manufacturing overhead 13.4 Unit product cost 59.1 An outside supplier has offered to sell the company all these parts it needs for $56.00 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units ofa product that is in high demand. The additional contribution margin on this other product would be $50,000 per year. If the part were purchased from the outside supplier, $5.10 of the fixed manufacturing overhead cost being applied to the part would continue. This fixed manufacturing overhead cost would be applied to the company's remaining products. Required: a. How much of the unit product cost of $59.10 is relevant in the decision of whether to make or buy the part? b. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it