Robin Company currently produces 8,000 units of part B13. Current costs for part

Question

Robin Company currently produces 8,000 units of part B13. Current costs for part B13 are as follows:
Direct materials

$12
Direct labor

9
Factory rent

7
Administrative

10
General factory overhead

7
Total

$45

If the company decides to buy part B13, 50% of the administrative costs would be avoided. All of the Robin Company items, including part B13, are manufactured in the same rented production facility. The company has an offer from a wholesaler that wishes to sell the part to Robin for $31 per unit. What effect will occur if the company decides to accept the offer?
Answer
A.
The cost for this part will decrease by $14 per unit.
B.
The cost for this part will increase by $5 per unit.
C.
The cost for this part will be the same.
D.
The cost for this part will decrease by $10 per unit.

Explanation / Answer

B. The cost for this part will increase by $5 per unit.

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