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Lewis Auto Company: Relative Per Unit Cost

18. Lewis Auto Company manufactures a part for use in its production of automobiles. When 10,000 items are produced, the costs per unit are:

Direct materials $ 12
Direct manufacturing labor 60
Variable manufacturing overhead 24
Fixed manufacturing overhead 32
Total $128
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?

Solution Preview

18. Lewis Auto Company manufactures a part for use in its production of automobiles. When 10,000 items are produced, the costs per unit are:

Direct materials $ 12
Direct manufacturing labor 60
Variable manufacturing overhead 24
...

Solution Summary

This solution shows step-by-step calculations to determine the relevant per unit cost for the original part and suggests an alternative for the Lewis Auto Company.

$2.19