Transformation Motor Company Produces a Part That Is Used in the Manufacture

question 26

Essay

Transformation Motor Company produces a part that is used in the manufacture of one of its products.The unit manufacturing costs of this part,assuming a production level of 6,000 units,are as follows:
$\begin{array}{lr}\text { Direct materials}&\$5\\\text {Direct labor (variable cost) }&6\\\text {Variable manufacturing overhead }&3\\\text {Fixed manufacturing overhead }&4\\\text {Total cost }&\$18\\\end{array}$
Alba Motors Company has offered to sell 6,000 units of the same part to Transformation for $17.50 per unit.Assuming the company has no other use for its facilities and that the fixed manufacturing costs are unavoidable,what should Transformation do?

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