Lincoln Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 5,000 units, are as follows:
$$\begin{array} { | l | r | r | }
\hline \text { Direct materials } & \$ 3 & \
\hline \text { Direct labor } & 5 & \
\hline \text { Variable manufacturing overhead } & 4 & \
\hline \text { Fixed manufacturing overhead } & 2 & \
\hline \text { Total cost } & \$ 14 & \
\hline
\end{array}$$ Erickson Company has offered to sell 5,000 units of the same part to Lincoln Company for $13 per unit. Assuming the company has no other use for its facilities and that the fixed manufacturing costs are
Unavoidable, what should Lincoln Company do?

Question

Lincoln Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 5,000 units, are as follows:
$$\begin{array} { | l | r | r | } 
\hline \text { Direct materials } & \$ 3 & \
\hline \text { Direct labor } & 5 & \
\hline \text { Variable manufacturing overhead } & 4 & \
\hline \text { Fixed manufacturing overhead } & 2 & \
\hline \text { Total cost } & \$ 14 & \
\hline
\end{array}$$ Erickson Company has offered to sell 5,000 units of the same part to Lincoln Company for $13 per unit. Assuming the company has no other use for its facilities and that the fixed manufacturing costs are
Unavoidable, what should Lincoln Company do?

Quizplus · Accepted Answer

The Answer of Lincoln Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 5,000 units, are as follows:
$$\begin{array} { | l | r | r | } 
\hline \text { Direct materials } & \$ 3 & \
\hline \text { Direct labor } & 5 & \
\hline \text { Variable manufacturing overhead } & 4 & \
\hline \text { Fixed manufacturing overhead } & 2 & \
\hline \text { Total cost } & \$ 14 & \
\hline
\end{array}$$ Erickson Company has offered to sell 5,000 units of the same part to Lincoln Company for $13 per unit. Assuming the company has no other use for its facilities and that the fixed manufacturing costs are
Unavoidable, what should Lincoln Company do?

Lincoln Company Produces a Part That Is Used in the Manufacture