Question

The RST Company makes 38,000 parts to be used in its main products. The cost per part at this activity level is:

Answer 1

Answer:

($43,700)

Explanation:

38,000 units produced:

• Direct materials  $ 6.50
• Direct labor  $6.60
• Variable manufacturing overhead $3.75
• Fixed manufacturing overhead  $3.45
• total cost per unit = $20.30

outside supplier offers parts at $18 per unit

fixed manufacturing overhead is unavoidable

                                Alternative 1             Alternative 2        Differential

                                keep producing       buy                        amount

Prod. cost                $771,400                               $0            $771,400

Purchase cost                    $0                  $684,000            ($684,000)

Unavoidable costs            $0                     $131,100               ($131,100)

total                         $771,400                    $815,100               ($43,700)

The financial disadvantage of purchasing the parts from an outside vendor = ($43,700)