Part A:

Armidale Manufacturing produces Part XM for its main product, XMT Hardware. The companys 2016 books reveal the following per unit cost of Part XM:

Direct materials $ 21

Direct labor $30

Variable overhead $25

Fixed overhead $28

Total $104.00

Tamworth Manufacturing has offered Armidale Manufacturing to sell them 7,000 of the Part XM for $89.00 each. Armidale Manufacturing, if agrees to the offer, will be able to avoid/eliminate $140,000 of fixed overhead costs.

Required:

1. How much are the total relevant costs for Armidale Manufacturing?

2. If you are a management accountant at Armidale Manufacturing, would you decide to buy Part XM of Tamworth Manufacturing or continue to manufacture the part in-house? Work out the difference in financial value between the two alternatives?

Part B:

What qualitative factors (write any two) you should consider before making the decision under Part A.