Royal Company manufactures 19,000 units of part R-3 each year for use on its pro
ID: 2381296 • Letter: R
Question
Royal Company manufactures 19,000 units of part R-3 each year for use on its production line. At this level of activity, the cost per unit for part R-3 is:
An outside supplier has offered to sell 19,000 units of part R-3 each year to Royal Company for $44.50 per part. If Royal Company accepts this offer, the facilities now being used to manufacture part R-3 could be rented to another company at an annual rental of $428,900. However, Royal Company has determined that $12 of the fixed manufacturing overhead being applied to part R-3 would continue even if part R-3 were purchased from the outside supplier.
What is the total relevant cost of making the product? (Omit the "$" sign in your response.)
Royal Company manufactures 19,000 units of part R-3 each year for use on its production line. At this level of activity, the cost per unit for part R-3 is:
Explanation / Answer
What is the total relevant cost of making the product? (Omit the "$" sign in your response.)
Relevant cost per part to manufacture = Direct materials+Direct labor+Variable manufacturing overhead + Avoidable Fixed manufacturing overhead
Relevant cost per part to manufacture = 5.70+7+3.70+(18-12) = 22.40
Total relevant cost of making the product (19,000 units)= 19000*22.40 + 428900 =854500
Total relevant cost of buying the product (19,000 units)= 44.50*19000= 845500
Oppurtunity cost =854500-845500 =9000
What is the total relevant cost of making the product? (Omit the "$" sign in your response.)
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