28) Rockford Company manufactures a part for use in its production of hats. When
ID: 2577667 • Letter: 2
Question
28) Rockford Company manufactures a part for use in its production of hats. When 10,000 25) items are produced, the costs per unit Direct materials Direct manufacturing labor Variable manufacturing overhead Fixed manufacturing overhead $0.75 3.00 1.50 60 $6.85 Total Angel Company has offered to sell to Rockford Company 10,000 units of the part for $6.00 per unit. The plant facilities could be used to manufacture another item at a savings of $9,000 if Rockford accepts the offer. In addition, $1.00 per unit of fixed manufacturing overhead on the original item would be eliminated. Required: a. What is the relevant per unit cost for the original part? b. Which alternative is best for Rockford Company? By how much?Explanation / Answer
Answer to A
Answer to B
Best option is to purchase from outside market
Make Amt Direct Material 0.75 Direct Labor 3.00 Variable Overhead 1.50 Relevant Fixed Cost 1.00 Total Relevant Cost 6.25