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