However royal company has determined that 8 of the fixed

Reference no: EM13571429

Royal Company manufactures 23,000 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	$	5.30
Direct labor		8.00
Variable manufacturing overhead		3.30
Fixed manufacturing overhead		12.00

Total cost per part	$	28.60

An outside supplier has offered to sell 23,000 units of part R-3 each year to Royal Company for $25.60 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 $102,000. 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?

Total relevant cost of making the product (23,000 units)

b.	What is the total relevant cost of buying the product?

Total relevant cost of buying the product (23,000 units)

c.	What is the opportunity cost of making instead of buying?

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.)

Profits would (Click to select)decreaseincrease by

Reference no: EM13571429

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