Green Company produces 100 parts per year, which are used in the assembly of one

Question

Green Company produces 100 parts per year, which are used in the assembly of one of its products. The unit product cost of these parts is:

Variable manufacturing cost $12

Fixed manufacturing cost $9

Unit product cost $21

The part can be purchased from an outside supplier at $18 per unit. If the part is purchased from the outside supplier, $500 of the fixed manufacturing costs can be eliminated. What would happen to the cost of 100 units if the company decided to purchase the parts from the supplier?

A. $200 increase in cost

b. $300 decrease in cost

c. $200 increase in cost

d.$100 increase in cost

Explanation / Answer

Relevant cost :

So answer is d) $100 increase in cost

Make buy Variable manufacturing cost 1200 Fixed manufacturing cost 500 Purchase cost 1800 Total 1700 1800

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