Maurice Tutor

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    Argosy University/ Phoniex University/
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    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 11 Aug 2017 My Price 11.00

Royal Company

Royal Company manufactures 20,000 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 $ 4.80
Direct labor   7.00
Variable manufacturing overhead   3.20
Fixed manufacturing overhead   10.00
 
Total cost per part $ 25.00
 

 

An outside supplier has offered to sell 20,000 units of part R-3 each year to Royal Company for $23.50 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 $150,000. However, Royal Company has determined that $6 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? (Omit the "$" sign in your response.)

 

Total relevant cost of making the product (20,000 units) $

 

b.

What is the total relevant cost of buying the product? (Omit the "$" sign in your response.)

 

Total relevant cost of buying the product (20,000 units) $

 

c. What is the opportunity cost of making instead of buying? (Omit the "$" sign in your response.)

 

Total opportunity cost $

 

d. How much profits will increase or decrease if the outside supplier%u2019s offer is accepted? (Input the amount as a positive value. Omit the "$" sign in your response.)

 

Profits would by $

 

Answers

Maurice Tutor
(5)
Status NEW Posted 11 Aug 2017 04:08 PM My Price 11.00

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