Muscat Engineering Company manufactures a part for use in its production of hard-hats. When 10,000 items are produced, the costs per unit are:

Nizwa Company has offered to sell to Muscat Engineering 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 Muscat Engineering 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 Muscat Engineering Company? By how much?

Question

Muscat Engineering Company manufactures a part for use in its production of hard-hats. When 10,000 items are produced, the costs per unit are:
 
Nizwa Company has offered to sell to Muscat Engineering 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 Muscat Engineering 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 Muscat Engineering Company? By how much?

Quizplus · Accepted Answer

The Answer of Muscat Engineering Company manufactures a part for use in its production of hard-hats. When 10,000 items are produced, the costs per unit are:
 
Nizwa Company has offered to sell to Muscat Engineering 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 Muscat Engineering 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 Muscat Engineering Company? By how much?

Muscat Engineering Company Manufactures a Part for Use in Its