Lewis Auto Company manufactures a part for use in its production of automobiles.When 10,000 items are produced,the costs per unit are:
$\begin{array}{lr}
\text { Direct materials } & \$ 12 \
\text { Direct manufacturing labor } & 60 \
\text { Variable manufacturing overhead } & 24 \
\text { Fixed manufacturing overhead } & \underline{32}\
\text { Total }&\$128
\end{array}$ 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?

Question

Lewis Auto Company manufactures a part for use in its production of automobiles.When 10,000 items are produced,the costs per unit are:
 $\begin{array}{lr}
\text { Direct materials } & \$ 12 \
\text { Direct manufacturing labor } & 60 \
\text { Variable manufacturing overhead } & 24 \
\text { Fixed manufacturing overhead } & \underline{32}\
\text { Total }&\$128
\end{array}$ 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 automobiles.When 10,000 items are produced,the costs per unit are:
 $\begin{array}{lr}
\text { Direct materials } & \$ 12 \
\text { Direct manufacturing labor } & 60 \
\text { Variable manufacturing overhead } & 24 \
\text { Fixed manufacturing overhead } & \underline{32}\
\text { Total }&\$128
\end{array}$ 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