Lewis Auto Company manufactures a part for use in its production of motor cars.When 10 000 items are produced,the costs per unit are:
$$\begin{array} { l r }
\text { Direct materials } & \$ 12 \
\text { Direct manufacturing labour } & 60 \
\text { Variable manufacturing overhead } & 24 \
\text { Fixed manufacturing overhead } & \underline { 32 } \
\quad \text { Total } & \underline { \$ 128} \
\end{array}$$
Monty Company has offered to sell Lewis Auto Company 10 000 units of the part for $120 per unit.The plant facilities could be used to manufacture another part at a savings of $180 000 if Lewis Auto accepts the supplier's offer.In addition,$20 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 Auto Company? By how much?
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Question

Lewis Auto Company manufactures a part for use in its production of motor cars.When 10 000 items are produced,the costs per unit are:
 $$\begin{array} { l r } 
\text { Direct materials } & \$ 12 \
\text { Direct manufacturing labour } & 60 \
\text { Variable manufacturing overhead } & 24 \
\text { Fixed manufacturing overhead } & \underline { 32 } \
\quad \text { Total } & \underline { \$ 128} \
\end{array}$$ 
Monty Company has offered to sell Lewis Auto Company 10 000 units of the part for $120 per unit.The plant facilities could be used to manufacture another part at a savings of $180 000 if Lewis Auto accepts the supplier's offer.In addition,$20 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 Auto Company? By how much?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Quizplus · Accepted Answer

The Answer of Lewis Auto Company manufactures a part for use in its production of motor cars.When 10 000 items are produced,the costs per unit are:
 $$\begin{array} { l r } 
\text { Direct materials } & \$ 12 \
\text { Direct manufacturing labour } & 60 \
\text { Variable manufacturing overhead } & 24 \
\text { Fixed manufacturing overhead } & \underline { 32 } \
\quad \text { Total } & \underline { \$ 128} \
\end{array}$$ 
Monty Company has offered to sell Lewis Auto Company 10 000 units of the part for $120 per unit.The plant facilities could be used to manufacture another part at a savings of $180 000 if Lewis Auto accepts the supplier's offer.In addition,$20 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 Auto Company? By how much?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Lewis Auto Company Manufactures a Part for Use in Its