Calculate the total relevant cost of buying the product


Royal Company manufactures 20,000 units of part R-3 each year for use on its production line. At this level of activity, the cost per unit for part R-3 is:

  • Direct materials $ 5.70
  • Direct labor 7.00
  • Variable manufacturing overhead 3.60
  • Fixed manufacturing overhead 9.00
  • Total cost per part $ 25.30

An outside supplier has offered to sell 20,000 units of part R-3 each year to Royal Company for $41.00 per part. If Royal Company accepts this offer, the facilities now being used to manufacture part R-3 could be rented to another company at an annual rental of $423,000. However, Royal Company has determined that $6 of the fixed manufacturing overhead being applied to part R-3 would continue even if part R-3 were purchased from the outside supplier.

Required:

a. What is the total relevant cost of buying the product? (Omit the "$" sign in your response.)

b. Total relevant cost of buying the product (20,000 units) $____________

Request for Solution File

Ask an Expert for Answer!!
Accounting Basics: Calculate the total relevant cost of buying the product
Reference No:- TGS0702938

Expected delivery within 24 Hoursrs