Exercise I do not understand, Cost Accounting

what would your answer be to the following problem, please show detailed calculations:
The XYZ Company manufacturers Part 123 for use in its production line. The manufacturering cost per unit for 20,000 units of Part 123 is as follows:
Direct Material $6, Direct manufacturing labor $30, Variable manufacturing overhead $12, Fixed manufacturing overhead allocated $16; Total manufacturing cost per unit $64.
The ABC Company has offered to sell 20,000 units of Part 123 to XYZ for $60 per unit. XYZ will make a decision to buy the part from ABC if there is an overall savings of at least $25,000 for XYZ. If XYZ accepts ABC''s offer, $9 per unit of the fixed overhead allocated would be eiliminated. Furthermore, XYZ has determined that the released facilities could be used to save relevant costs in the manufacture of Part 987. For XYZ to achieve an overall savings of $25,000, the amount of revelant costs that would have to be saved by using the released facilties in the manufacturer of Part 987 would be (choose one): (1)$140,000; (2)$125,000; (3)$85,000; (4)$80,000?

Thank You
Michael
Posted Date: 11/1/2012 9:23:56 PM | Location : United States







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