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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.
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