Question
Royal Company manufactures 24,000 units of part R-3 each year for use on its production line. At this level of activity, the cost per unit
Royal Company manufactures 24,000 units of part R-3 each year for use on its production line. At this level of activity, the cost per unit for part R-3 is:
Direct materials $ 4.90
Direct labor 7.00
Variable manufacturing overhead 2.20
Fixed manufacturing overhead 9.00
Total cost per part $ 23.10
An outside supplier has offered to sell 24,000 units of part R-3 each year to Royal Company for $41.50 per part. If Royal Company accepts this offer, the facilities now being used to manufacture part R-3 could be rented to another company at an annual rental of $586,600. However, Royal Company has determined that $6 of the fixed manufacturing overhead being applied to part R-3 would continue even if part R-3 were purchased from the outside supplier.
I was able to get the first two answers:
What is the total relevant cost of making the product? 997,000
What is the total relevant cost of buying the product? 996,000
I was also able to get the last answer:
How much profits will increase or decrease if the outside supplier
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