Royal Company manufactures 27.000 units of each year for use on its production l

Question

Royal Company manufactures 27.000 units of each year for use on its production line. At this level of activity, the cost per unit for pan R-3 is: An outside supplier has offered to sell 27.000 units of part R-3 each year to Royal Company for $48.50 per part. If Royal Company accepts This offer, the facilities now being used to manufacture could be rented to another company at an annual rental of $773,100. However. Royal Company has determined that 512 of the fixed manufacturing overhead being applied to would continue even if part R-3 were purchased from the outside supplier. Required: What is the total relevant cost of making the product? (Omit the "$" sign In your response.) Total relevant cost of making the product (27,000 units) $ What is the total relevant cost of buying the product? (Omit the "$" sign In your response.) Total relevant cost of buying the product (27,000 units) $ What is the opportunity cost of making instead of buying? (Omit the "$" sign In your response.) Total opportunity cost $

Explanation / Answer

Total relevant cost of making the product: $3.9+ $8.00 + $2.30 + ($18.00 - $12.00) =$20.2 = $20.2* 27,000 =$ 545400 = $ 545400 + $773,100 = $1318500 Total relevant cost of buying this product: $48.50 * 27,000 = $1309500 Total opportunity cost: $773,100 How much profits will increase or decrease if the outside supplier's offer is accepted: $1318500 - $1309500 = $9000 (increase)

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