McGraw Inc. manufacturers 12, 000 units of a part in its production to manufactu
ID: 2497066 • Letter: M
Question
McGraw Inc. manufacturers 12, 000 units of a part in its production to manufacture guitars. The annual production activities related to this part are as follows Hill Inc. has offered to sell 12,000 units of the same part to McGraw for $ 22 per units. If McGraw were to accept the offer, some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $ 8,000. Moreover, $4 per unit of the fixed overhead applied to the part would be totally eliminated. In the decision to make or but the part, what is the relevant fixed overhead for McGraw Inc?Explanation / Answer
The relevant fixed overhead for Mc. Graw for make or buy decision would be
(c) $ 4 per unit * 12000 units = $ 48,000