Royal Company manufactures 20,000 units of part R-3 each year for use on its pro
ID: 2389291 • Letter: R
Question
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 $ 5.70
Direct labor 7.00
Variable manufacturing overhead 3.60
Fixed manufacturing overhead 9.00
Total cost per part $ 25.30
An outside supplier has offered to sell 20,000 units of part R-3 each year to Royal Company for $41.00 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 $423,000. However, Royal Company has determined that $6 of the fixed manufacturing overhead being applied to part R-3 would continue even if part R-3 were purchased from the outside supplier.
Required:
b. What is the total relevant cost of buying the product? (Omit the "$" sign in your response.)
Total relevant cost of buying the product (20,000 units) $____________
Explanation / Answer
relevant cost of buying the product=41*20000=820000
less-annual rent=$423000
less-saving in fixed costs=3*20000=60000
total relevant cost=820000-423000-60000=337000
Total relevant cost of buying the product (20,000 units) $ 337000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.