Question

Recher Corporation uses part Q89 in one of its products. The company's Accounting Department reports the following costs of producing the 9,900 units of the part that are needed every year.

	Per Unit
Direct materials	$	6.30​
Direct labor	$	3.50​
Variable overhead	$	6.90​
Supervisor's salary	$	2.60​
Depreciation of special equipment	$	2.20​
Allocated general overhead	$	1.20​
Total	$	22.70

An outside supplier has offered to make the part and sell it to the company for $22.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $4,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part Q89 could be used to make more of one of the company's other products, generating an additional segment margin of $16,200 per year for that product.

A)Of the $22.70 per unit cost above, how much per unit is relevant? (Round final answer to two decimal places)

B)Assuming the company considers opportunity costs, what is the net total dollar advantage (disadvantage) of purchasing the part rather than making it? Denote the sign of your answer, so that negative is a disadvantage. (Round your final answer to the nearest dollar)

C) What is the maximum amount per unit the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all units required? (Round final answer to two decimal places)

Answer 1

The answer has been presented in the supporting sheet, For detailed answer refer to the supporting sheet.