Rockford Company Manufactures a Part for Use in Its Production

question 107

Essay

Rockford Company manufactures a part for use in its production of hats. When 10,000 items are produced, the costs per unit are:

Angel Company has offered to sell to Rockford Company 10,000 units of the part for $6.00 per unit. The plant facilities could be used to manufacture another item at a savings of $9,000 if Rockford accepts the offer. In addition, $1.00 per unit of fixed manufacturing overhead on the original item would be eliminated.
Required:
a.What is the relevant per unit cost for the original part?
b.Which alternative is best for Rockford Company? By how much?

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Definitions:

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