Richter Company has a single product called a Wim. The company normally produces

Question

Richter Company has a single product called a Wim. The company normally produces and sells 60,000 Wims each year at a selling price of $40 per unit. The company’s unit costs at this level of activity are given below:

A number of questions relating to the production and sale of Wims are given below. Each question is
independent

An outside manufacturer has offered to produce Wims and ship them directly to Richter’s customers. If Richter Company accepts this offer, the facilities that it uses to produce Wims would be idle; however, fixed manufacturing overhead costs would continue at 25%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be reduced by 50%. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Total relevant unit cost:________

Richter Company has a single product called a Wim. The company normally produces and sells 60,000 Wims each year at a selling price of $40 per unit. The company’s unit costs at this level of activity are given below:

Explanation / Answer

Statement showing computation of relevantCost Particulars Amount Direct Materials                                 7.70 Direct Labour                               13.00 Variable Manu O/H                                 3.50 Fixed Manu O/H = 6*75%                                 4.50 Variable Selling exp = 3.50/2                                 1.75 Total Relevant per unit cost                               30.45 Thus if the price is above 30.45 it should be better to make the product If the price is below 30.45 it should be better to buy the product

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