Lewis Auto Company manufactures a part for use in its production of automobiles. When 10,000 items are produced, the costs per unit are:
Monty Company has offered to sell Lewis Auto Company 10,000 units of the part for $120 per unit. The plant facilities could be used to manufacture another part at a savings of $180,000 if Lewis Auto accepts the supplier's offer. In addition, $20 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 Lewis Auto Company? By how much?
Definitions:
Serious Injuries
Physical harm that poses significant risk to a person's health or well-being, often requiring medical attention.
Business Invitee
A person, such as a customer or a client, who is invited onto business premises by the owner of those premises for business purposes.
Business Premises
The buildings and land where a business operates, including offices, factories, retail stores, and other facilities.
Business Purposes
refers to the intentions or objectives that are undertaken for commercial gain or organizational benefit.
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