Lewis Auto Company Manufactures a Part for Use in Its

question 117

Essay

Lewis Auto Company manufactures a part for use in its production of motor cars.When 10 000 items are produced,the costs per unit are:
$$\begin{array} { l r } \text { Direct materials } & \$ 12 \\\text { Direct manufacturing labour } & 60 \\\text { Variable manufacturing overhead } & 24 \\\text { Fixed manufacturing overhead } & \underline { 32 } \\\quad \text { Total } & \underline { \$ 128} \\\end{array}$$
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?
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Definitions:

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The process of manufacturing goods in large quantities using machines in a factory.

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