West Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 20,000 units of this part are as follows:

Direct materials $ 100,000

Direct labour 180,000

Variable factory overhead 300,000

Fixed factory overhead 250,000

$820,000

Of the fixed factory overhead costs, $70,000 is avoidable.

Required: Use only relevant costs.

a) Assuming there is no alternative use for the facilities, should West take advantage of an offer from a supplier who is willing to sell West 20,000 units of the same part for $31 per unit? Show all supporting calculations.

b) Assume that if the parts are purchased, West Company would free space that could be rented for $24,000 per year. Should West take advantage of an offer from a supplier who is willing to sell West 20,000 units of the same part for $31 per unit? Show all supporting calculations.