What will occur if the company accepts the offer

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Reference no: EM133001139

Harrison Enterprises currently produces 8,000 units of part B13. Current unit costs for part B13 are as follows:

Direct materials $12

Direct labor 9

Factory rent 7

Administrative costs 10

General factory overhead (allocated) 7

Total $45

Problem 1: If Harrison decides to buy part B13, 50% of the administrative costs would be avoided. All of the company's items, including part B13, are manufactured in the same rented production facility. The company has an offer from a wholesaler that wishes to sell the part to Harrison for $31 per unit. What will occur if the company accepts the offer?

Option 1: The cost for this part will increase by $5 per unit.
Option 2: The cost for this part will be the same.
Option 3: The cost for this part will decrease by $14 per unit.
Option 4: The cost for this part will decrease by $10 per unit.

Reference no: EM133001139

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