Exercise 12 12 Make or Buy a Component [LO3]
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Royal Company manufactures 20,000 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: |
| Direct materials | $ | 4.10 |
| Direct labor | 7.00 | |
| Variable manufacturing overhead | 3.80 | |
| Fixed manufacturing overhead | 12.00 | |
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| Total cost per part | $ | 26.90 |
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An outside supplier has offered to sell 20,000 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 $523,000. However, Royal Company has determined that $8 of the fixed manufacturing overhead being applied to part R 3 would continue even if part R 3 were purchased from the outside supplier. |
| Required: |
| a. |
What is the total relevant cost of making the product? (Omit the “$” sign in your response.) |
| Total relevant cost of making the product (20,000 units) | $ |
| b. | What is the total relevant cost of buying the product? (Omit the “$” sign in your response.) |
| Total relevant cost of buying the product (20,000 units) | $ |
| c. | What is the opportunity cost of making instead of buying? (Omit the “$” sign in your response.) |
| Total opportunity cost | $ |
| d. |
How much profits will increase or decrease if the outside supplier’s offer is accepted? (Input the amount as a positive value. Omit the “$” sign in your response.) |
| Profits would (Click to select)decreaseincrease by | $ |
i need the answer to A.C.and D