Foster Company makes 20,000 units per year of a part that it uses in the products it manufactures. The unit product cost of this part is computed as follows: Direct Materials Direct Labour Variable Manufacturing Overhead Fixed Manufacturing Overhead $ 24.70 16.30 2.30 13.40 $ 56.70 An outside supplier has offered to sell the company all the parts that Foster needs for $ 51.80 per unit If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin per year on this other product would be $ 44,000 $ 4.59 of the fixed manufacturing overhead cost that is being applied to the part would continue, even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products. O Required: How much of the unit product cost of $56.70 is relevant in the decision of whether to make or buy the part? Direct materials Direct Labour Variable overhead Fixed overhead Total Relevant costs to make (b) What is the net total dollar advantage (disadvantage) of purchasing the 20,000 parts rather than making them? 22 23 24 19 Required: 20 (a) How much of the unit product cost of $56.70 is relevant in the decision of whether to make or buy the part? 21 Direct materials Direct Labour Variable overhead Fixed overhead Total Relevant costs to make 27 28 29 (b) What is the net total dollar advantage advantage) of purchasing the 20,000 parts rather than making them? 30 25 26 31 32 33 34 35 Net Advantage (Disadvantage) of Purchasing 36 37 (c) 38 What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 20,000 units required each year? 39 40 41 42 43 44 Maximum acceptable purchase price per unit