28) Rockford Company manufactures a part for use in its production of hats. When

Question

28) Rockford Company manufactures a part for use in its production of hats. When 10,000 25) items are produced, the costs per unit Direct materials Direct manufacturing labor Variable manufacturing overhead Fixed manufacturing overhead $0.75 3.00 1.50 60 $6.85 Total Angel Company has offered to sell to Rockford Company 10,000 units of the part for $6.00 per unit. The plant facilities could be used to manufacture another item at a savings of $9,000 if Rockford accepts the offer. In addition, $1.00 per unit of fixed manufacturing overhead on the original item would be eliminated. Required: a. What is the relevant per unit cost for the original part? b. Which alternative is best for Rockford Company? By how much?

Explanation / Answer

Answer to A

Answer to B

Best option is to purchase from outside market

Make Amt Direct Material              0.75 Direct Labor              3.00 Variable Overhead              1.50 Relevant Fixed Cost              1.00 Total Relevant Cost              6.25

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