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Question - Every year Riverbed Industries manufactures 7,300 units of part 231 for use in its production cycle. The per unit costs of part 231 are as follows:
Direct materials $5.00
Direct labor 11.00
Variable manufacturing overhead 6.00
Fixed manufacturing overhead 10.00
Total $32.00
Ivanhoe, Inc., has offered to sell 7,300 units of part 231 to Riverbed for $34 per unit. If Riverbed accepts Ivanhoe's offer, its freed-up facilities could be used to earn $10,500 in contribution margin by manufacturing part 240. In addition, Riverbed would eliminate 40% of the fixed overhead applied to part 231.
Required -
(a) Calculate total relevant cost to make and net cost to buy.
(b) Should Riverbed accept Ivanhoe's offer?
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