Every year Blue Industries manufactures 7,300 units of part 231 for use in its production cycle. The per unit costs of part 231 are as follows: Direct materials   $ 3   Direct labor   11   Variable manufacturing overhead   8   Fixed manufacturing overhead   10   Total   $32   Flintrock, Inc., has offered to sell 7,300 units of part 231 to Blue for $33 per unit. If Blue accepts Flintrock’s offer, its freed-up facilities could be used to earn $10,700 in contribution margin by manufacturing part 240. In addition, Blue would eliminate 50% of the fixed overhead applied to part 231.(a) Calculate total relevant cost to make and net cost to buy. Total relevant cost to make $   Net relevant cost to buy $   (b) Should Blue accept Flintrock’s offer?  YesNo     Click if you would like to Show Work for this question: Open Show Work

Question
Every year Blue Industries manufactures 7,300 units of part 231 for use in its production cycle. The per unit costs of part 231 are as follows:

Direct materials   $ 3  
Direct labor   11  
Variable manufacturing overhead   8  
Fixed manufacturing overhead   10  
Total   $32  

Flintrock, Inc., has offered to sell 7,300 units of part 231 to Blue for $33 per unit. If Blue accepts Flintrock’s offer, its freed-up facilities could be used to earn $10,700 in contribution margin by manufacturing part 240. In addition, Blue would eliminate 50% of the fixed overhead applied to part 231.

(a) Calculate total relevant cost to make and net cost to buy.

Total relevant cost to make $
 
Net relevant cost to buy $
 

(b) Should Blue accept Flintrock’s offer?

 YesNo

 

 

Click if you would like to Show Work for this question:
Open Show Work

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