Question - The Reno Company manufactures part no.498 for use in its production line. The manufacturing costs per unit for 20,000 units of part no.498 are as follows;
Direct Materials P6
Direct Labor P30
Variable overhead 12
Fixed overhead allocated 16
Total P64
The Tray Corporation has offered to sell 20,000 units of part no.498 to Reno for P60 per unit. Reno will make the decision to buy the part from Tray if there is an overall savings of P25,000 for Reno. If Reno accepts Tray's offer, P9 per unit of the fixed overhead allocated would be totally eliminated. Furthermore, Reno has determined that the released facilities could be used to save relevant costs in the manufacture of part no. 575. What is the amount of relevant costs that would have to be saved by Reno using the released facilities in the manufacture of part no. 498 to have an overall saving of P25,000?