Potter Company manufactures a part for its production cycle. The annual costs per unit for 10,000...
Potter Company manufactures a part for its production cycle. The annual costs per unit for 10,000 units for the part are as follows:
Per Unit
Direct materials. $20.00
Direct labor 15.00
Variable factory overhead. 16.00
Fixed factory overhead 10.00
Total costs $61.00
The fixed factory overhead costs are unavoidable. Paulson Company has offered to sell 10,000 units of the same part to Potter Company for $60 per unit. The facilities currently used to make the part could be rented out to another manufacturer for $100,000 per year. Potter company should
A) make the part to save $10,000
B) buy the part and rent the facilities to save $10,000
C) make the part to save $25,000
D) buy the part and rent the facilities to save $25,000
Homework Answers
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Potter Company manufactures a part for its production cycle. The
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Direct labour
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At this level of activity, the cost per unit for Part R-3
follows:
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Direct labour
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Variable manufacturing overhead
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Fixed manufacturing overhead
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Total cost per part
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accepts this offer, the facilities now being used to manufacture
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