Lewis S. Gray Inc. manufactures a part for use in its production of art deco furniture. When 10,000 items are produced, the costs per unit are:

Colonial Accents Company has offered to sell to Lewis S. Gray 10,000 units of the part for $125 per unit. The plant facilities could be used to manufacture another part at a savings of $180,000 if Lewis S. Gray accepts the supplier's offer. In addition, $30 per unit of fixed manufacturing overhead on the original part would be eliminated.
Required:
a.What is the relevant per unit cost for the original part?
b.Which alternative is best for Lewis S. Gray Company? By how much?

Question

Lewis S. Gray Inc. manufactures a part for use in its production of art deco furniture. When 10,000 items are produced, the costs per unit are:
  
Colonial Accents Company has offered to sell to Lewis S. Gray 10,000 units of the part for $125 per unit. The plant facilities could be used to manufacture another part at a savings of $180,000 if Lewis S. Gray accepts the supplier's offer. In addition, $30 per unit of fixed manufacturing overhead on the original part would be eliminated.
Required:
a.What is the relevant per unit cost for the original part?
b.Which alternative is best for Lewis S. Gray Company? By how much?

Quizplus · Accepted Answer

The Answer of Lewis S. Gray Inc. manufactures a part for use in its production of art deco furniture. When 10,000 items are produced, the costs per unit are:
  
Colonial Accents Company has offered to sell to Lewis S. Gray 10,000 units of the part for $125 per unit. The plant facilities could be used to manufacture another part at a savings of $180,000 if Lewis S. Gray accepts the supplier's offer. In addition, $30 per unit of fixed manufacturing overhead on the original part would be eliminated.
Required:
a.What is the relevant per unit cost for the original part?
b.Which alternative is best for Lewis S. Gray Company? By how much?

Lewis S Gray Inc