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EXERCISE 12–12 Make or Buy a Component [LO3] Royal Company manufactures 20,000 units of part R-3… 1 answer below » EXERCISE 12–12 Make or Buy a Component [LO3] Royal Company manufactures 20,000 units of part R-3 each year for use on its production line. At this level of activity, the cost per unit for part R-3 is: View complete question » Direct materials . . . . . . . . . . . . . . . . . . . . $ 4.80 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . 7.00 Variable manufacturing overhead . . . . . . . 3.20 Fixed manufacturing overhead . . . . . . . . . 10.00 Total cost per part . . . . . . . . . . . . . . EXERCISE 12–12 Make or Buy a Component [LO3] Royal Company manufactures 20,000 units of part R-3 each year for use on its production line. At this level of activity, the cost per unit for part R-3 is: Direct materials . . . . . . . . . . . . . . . . . . . . $ 4.80 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . 7.00 Variable manufacturing overhead . . . . . . . 3.20 Fixed manufacturing overhead . . . . . . . . . 10.00 Total cost per part . . . . . . . . . . . . . . . . . . . $25.00 An outside supplier has offered to sell 20,000 units of part R-3 each year to Royal Company for $23.50 per part. If Royal Company accepts this offer, the facilities now being used to manufacture part R-3 could be rented to another company at an annual rental of $150,000. However, Royal Company has determined that $6 of the fixed manufacturing overhead being applied to part R-3 would continue even if part R-3 were purchased from the outside supplier. Required: Prepare computations showing how much profits will increase or decrease if the outside supplier’s offer is accepted. View less » Dec 07 2015 06:13 PM
