Royal Company manufactures 22,000 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 $ 5.20
Direct labor 6.00
Variable manufacturing overhead 3.80
Fixed manufacturing overhead 15.00
Total cost per part $ 30.00
An outside supplier has offered to sell 22,000 units of part R-3 each year to Royal Company for $43.50 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 $504,000. However, Royal Company has determined that $10 of the fixed manufacturing overhead being applied to part R-3 would continue even if part R-3 were purchasedpurchasedarrow-10x10.png from the outside supplier.
Required:
a.What is the total relevant cost of making the product? (Omit the "tiny_mce_markerquot; sign in your response.)
Total relevant cost of making the product (22,000 units) $
b. What is the total relevant cost of buying the product? (Omit the "tiny_mce_markerquot; sign in your response.)
Total relevant cost of buying the product (22,000 units) $
c. What is the opportunity cost of making instead of buying? (Omit the "tiny_mce_markerquot; sign in your response.)
Total opportunity cost $
d.How much profitsprofitsarrow-10x10.png will increase or decrease if the outside supplier's offer is accepted? (Input the amount as a positive value. Omit the "tiny_mce_markerquot; sign in your response.)
ProfitsProfitsarrow-10x10.png would by $