Revved Up Toys Manufactures a Computer Chip Used in the Production

question 140

Essay

Revved Up Toys manufactures a computer chip used in the production of remote control cars. When 6,000 cars are produced, the costs per part are:
Sam's Associates has offered to sell Revved Up Toys 6,000 parts for $5.75 each. If Revved Up Toys accepts the offer, $1.00 of the fixed manufacturing overhead costs can be eliminated.
a. What is the relevant per unit cost to manufacture the part?
b. Which alternative is best for Revved Up Toys and by how much?

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Definitions:

Temporarily Undervalued

Refers to assets or securities believed to be priced below their true value, often expected to correct over time.

Stockholders

Stockholders, also known as shareholders, are individuals or entities that own one or more shares of stock in a public or private corporation, giving them partial ownership of the company.

Stock Dividends

A distribution by a company to its stockholders in the form of extra shares, instead of monetary compensation.

Cash Dividend

A monetary payment paid to shareholders, typically out of the corporation's current earnings or accumulated profits.