Transformation Motor Company Produces a Part That Is Used in the Manufacture

question 22

Short Answer

Transformation Motor Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 6,000 units, are as follows:
$\begin{array}{ll}\text { Direct materials } & \$ 5 \\\text { Direct labor (variable cost) } & 6 \\\text { Variable manufacturing overhead } & 3 \\\text { Fixed manufacturing overhead } & 4\\\text { Total cost }&\$18\end{array}$ Alba Motors Company has offered to sell 6,000 units of the same part to Transformation for $17.50 per unit. Assuming the company has no other use for its facilities and that the fixed manufacturing costs are unavoidable, what should Transformation do?

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