PLEASE ANSWER ONLY IF YOU SURE !! Royal Company manufactures 17,000 units of par

Question

PLEASE ANSWER ONLY IF YOU SURE !!

Royal Company manufactures 17,000 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 17,000 units of part R-3 each year to Royal Company for $25.20 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 $126,000. However, Royal Company has determined that $10 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?

How much profits will increase or decrease if the outside supplier’s offer is accepted? (Input the amount as a positive value.)

Royal Company manufactures 17,000 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

Royal Company All Amounts in $ a. Relevant Cost of making the product = 17,000 units X $ 28.20 = 479400 $ b. Relevant Cost of buying the product = 17,000 units X ($ 25.20 + $ 10) = 598400 $ c. Opportunity Cost of making instead of buying Rental Income earned which will be lost 126000 $ 5 of Fixed Overheads which will be incurred if product is not bought 85000 211000 $ d. Increase/(Decrease) in Profits If the outside suppliers' offer is accepted Costs @ 25.20 per unit 428400 Fixed Overheads @ $ 10 per unit 170000 598400 Costs Reduced Direct Materials Costs 69700 Direct Labor Costs 102000 Overhead Costs (3.1 + 5) 137700 Rentals on Premises (Income) 126000 435400 Decrease in Profits 163000

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