Car Parts Company manufactures a part for use in its production of automobiles.The costs per unit when 10,000 items are produced are:
Auto Company has offered to sell to Car Parts Company 10,000 units of the part for $60.The plant facilities could be used to manufacture another part at a savings of $90,000 if Car Parts accepts the offer.In addition, $10 per unit of fixed manufacturing overhead on the original part would be eliminated.Required:
a.What is the relevant per unit cost for the original part?
b.Which alternative is best for Car Parts Company? By how much?
Definitions:
Participants
Individuals or entities that take part in a process or activity.
Factors Of Production
The resources used in the production of goods and services, which include land, labor, capital, and entrepreneurship.
Inputs
The resources such as labor, materials, and capital that are used in the production process to produce goods and services.
Spending By Households
Total expenditures made by individual consumers on goods and services in an economy.
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