The Sweater Company produces sweaters. The company buys raw wool on the market and processes it into wool yarn from which the sweaters are woven. One spindle of wool yarn is required to produce one sweater. The costs and revenues associated with the sweaters are given below:

		Per sweater
Selling Price		30
Cost to manufacture: Raw materials:
Buttons, thread, lining	2
Wool yarn	16
Total raw materials	18
Direct labor	5.80
Manufacturing overhead	8.70	32.50
Manufacturing profit (loss)		(2.50)

Originally, all of the wool yard was used to produce sweaters, but in recent years a market has developed for the wool yarn itself. The yarn is purchased by other companies for use in production of wool blankets and other wool products. Since the development of the market for the wool yarn, a continuing dispute has existed in the Sweater Company as to whether the yarn should be sold simply as yarn or processed into sweaters. Current cost and revenue data on the yarn are given below:

		Per Spindle
Selling Price		20
Cost to manufacture:
Raw materials (raw wool)	7
Direct labor	3.60
Manufacturing overhead	5.40	16
Manufacturing profit	4

The market for sweaters is temporarily depressed, due to unusually warm weather. This has made it necessary for the company to discount the selling price of the sweaters to P30 from the normal P40 price. Since the market for wool yarn has remained strong, the dispute has again surfaced over whether the yarn should be sold outright rather than processed into sweaters. The sales manager thinks that the production of sweaters should be discontinued; she is upset about having to sell sweaters at a P2,50 loss when the yarn could be sold for a P4.00 profit.

However, the production superintendent is equally upset at the suggestion that he close down a large portion of the factory, He argues that the company is in the sweater business, not the yarn business, and that the company should focus on its core strength. Due to the nature of the production process, virtually all of the manufacturing overhead costs are fixed and would not be affected even if sweaters were discontinued. Manufacturing overhead is assigned to products on the basis of 150% of direct labor cost.

How much fixed overhead per unit is relevant to the production of sweaters?

a. P5.40

b. P0

c. P8.70

d. P14.10