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$

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Asked May 2, 2019
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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 $
 
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Expert Answer

Step 1

Relevant costs: These are the costs a business computes to decide whether to continue or close a unit. If the costs that can be eliminated due to closure, exceed the income lost from the closure of the unit, the unit could be closed.

Step 2

a.

Compute total relevant cost to make.

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Step 3

Compute net relevant...

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