Direct materials – $4
Variable direct manufacturing labor – 38
Variable manufacturing overhead -16
Fixed manufacturing overhead allocated -19
Total manufacturing cost per unit – $77
The Pane Company has offered to sell 10,000 units of Part No. 498 to Springfield for $ 73 per unit. Springfield will make the decision to buy the part from Pane if there is an overall savings of at least $ 50,000 for Springfield. If Springfield accepts Pane's offer, $ 6 per unit of the fixed overhead allocated would be eliminated. Furthermore, Springfield has determined that the released facilities could be used to save relevant costs in the manufacture of Part No. 575.
2. The Springfield Company manufactures Part No. 498 for use in its production line. The manufacturing cost per unit for 10,000 units of Part No. 498 is as follows: For Springfield to achieve an overall savings of $ 50,000, the number of relevant costs that would have to be saved by using the released facilities in the manufacture of Part No. 575 would be which of the following: (a) $40,000, (b) $ 140,000, (c) $70,000 or (d) $ 130,000? Show your calculations. What other factors might Springfield consider before outsourcing to Pane?
Relevant Costs in Manufacture Assignment
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