Car Parts Company Manufactures a Part for Use in Its

question 130

Essay

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?

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Definitions:

Type II Error

The error that occurs when a false null hypothesis is not rejected, often referred to as a "false negative."

Multiple Comparison

A statistical principle applied when multiple hypothesis tests are conducted simultaneously, requiring adjustment methods to control for the increased risk of Type I error.

Significant Difference

A statistical term indicating that the observed difference between two or more datasets is unlikely to be due to chance at a certain confidence level.

Tukey's Multiple Comparison

A statistical test used to find the differences between means in a set of data, part of post-hoc analysis following ANOVA.