Car Parts Company manufactures a part for use in its production of automobiles. The costs per...

Car Parts Company manufactures a part for use in its production of

automobiles. The costs per unit when 10,000 items are produced are:

Direct materials $6

Direct manufacturing labour 30

Variable manufacturing overhead 12

Fixed manufacturing overhead 16

Total $64

Auto Company has offered to sell to Car Parts Company 10,000 units of the part

for $60. The plant facilities could be used to manufacture another part at a

savings of $90,000 if Car Parts accepts the offer. In addition, $10 per unit of fixed

manufacturing overhead on the original part would be eliminated.

a. What is the relevant per unit cost for the original part?

b. Which alternative is best for Car Parts Company? By how much?

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Expert Solution

ekkarill92 answered 1 year ago

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