ABC Company manufactures a part for use in its production of art deco furniture. When 10,000 items are produced, the costs per unit are:

Direct materials $ 15

Direct manufacturing labor 60

Variable manufacturing overhead 25

Fixed manufacturing overhead 32

Total $132

The Big Corporation has offered to sell to ABC Company 10,000 units of the part for $125 per unit. The plant facilities could be used to manufacture another part at a savings of $180,000 if ABC Company accepts the supplier's offer. In addition, $30 per unit of fixed manufacturing overhead on the original part would be eliminated.

Required:

1. What is the relevant per unit cost for the original part?

2. Which alternative is best for ABC Company? By how much?

Please use the template below to enter into your spreadsheet. Some numbers are provided as a guide to assist you.

a. Direct materials $xx

Direct manufacturing labor xx

Variable manufacturing overhead xx

Avoidable fixed manufacturing overhead 30

Total relevant per unit costs $xx

b. Make Buy Effect of Buying

Purchase price xx $(1,250,000)

Savings in space xx 180,000

Direct materials $150,000 150,000

Direct manufacturing labor xx xx

Variable overhead 300,000 300,000

Fixed overhead saved (300,000) 300,000

Totals $1,050,000 $xx $xx