Transformation Motor 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 6,000 units, are as follows:
$\begin{array}{ll}
\text { Direct materials } & \$ 5 \
\text { Direct labor (variable cost) } & 6 \
\text { Variable manufacturing overhead } & 3 \
\text { Fixed manufacturing overhead } & 4\\text { Total cost }&\$18
\end{array}$ Alba Motors Company has offered to sell 6,000 units of the same part to Transformation for $17.50 per unit. Assuming the company has no other use for its facilities and that the fixed manufacturing costs are unavoidable, what should Transformation do?

Question

Transformation Motor 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 6,000 units, are as follows:
 $\begin{array}{ll}
\text { Direct materials } & \$ 5 \
\text { Direct labor (variable cost) } & 6 \
\text { Variable manufacturing overhead } & 3 \
\text { Fixed manufacturing overhead } & 4\\text { Total cost }&\$18
\end{array}$ Alba Motors Company has offered to sell 6,000 units of the same part to Transformation for $17.50 per unit. Assuming the company has no other use for its facilities and that the fixed manufacturing costs are unavoidable, what should Transformation do?

Quizplus · Accepted Answer

The Answer of Transformation Motor 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 6,000 units, are as follows:
 $\begin{array}{ll}
\text { Direct materials } & \$ 5 \
\text { Direct labor (variable cost) } & 6 \
\text { Variable manufacturing overhead } & 3 \
\text { Fixed manufacturing overhead } & 4\\text { Total cost }&\$18
\end{array}$ Alba Motors Company has offered to sell 6,000 units of the same part to Transformation for $17.50 per unit. Assuming the company has no other use for its facilities and that the fixed manufacturing costs are unavoidable, what should Transformation do?

Transformation Motor Company Produces a Part That Is Used in the Manufacture