Lewis Auto Company Manufactures a Part for Use in Its

question 9

Essay

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