Determining relevant per unit cost

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Reference no: EM1349169

Lewis Auto Company manufactures a part for use in its production of automobiles. When 10,000 items are produced, the costs per unit are:

Direct materials $ 12

Direct manufacturing labor 60

Variable manufacturing overhead 24

Fixed manufacturing overhead 32

Total $128

Monty Company has offered to sell Lewis Auto Company 10,000 units of the part for $120 per unit. The plant facilities could be used to manufacture another part at a savings of $180,000 if Lewis Auto accepts the supplier's offer. In addition, $20 per unit of fixed manufacturing overhead on the original part would be eliminated.

a. What is the relevant per unit cost for the original part?

b. Which alternative is best for Lewis Auto Company? By how much?

Reference no: EM1349169

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