Sarah's Talking Dolls Manufactures a Computer Chip Used in the Production

question 116

Essay

Sarah's Talking Dolls manufactures a computer chip used in the production of dolls for children.When 5,000 dolls are produced,the costs per part are:
$$\begin{array} { | l | c | } \hline \text { Direct materials } & \$ 2.00 \\\hline \text { Direct labor } & 1.50 \\\hline \text { Variable manufacturing overhead } & 1.75 \\\hline \text { Fixed manufacturing overhead } & \underline { 2.25 } \\\hline \text { Total } & \$ 7.50 \\\hline\end{array}$$ Sam's Associates has offered to sell Sarah's Talking Dolls 5,000 parts for $5.75 each.If Sarah 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 Sarah's Talking Dolls and by how much?

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Definitions:

Serotonin

A neurotransmitter that contributes to feelings of well-being and happiness; it also plays roles in sleep, appetite, and digestion.

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