Question

Jones Company makes 20,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows: An outside supplier has offered to sell the company all of these parts it needs for $51.80 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $44,000 per year. If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $5.10 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products. Required: a. How much of the unit product cost of $56.70 is relevant in the decision of whether to ma

Answer 1

$51.60

Step-by-step explanation:

The computation of the relevant cost per unit is shown below:

= Direct material per unit + direct labor per unit + variable overhead per unit + fixed overhead per unit - applied fixed manufacturing overhead per unit

= $24.70 + $16.30 + $2.30 + $13.40 - $5.10

= $51.60

We simply added the given cost in order to find out the relevant cost per unit