Reference no: EM13568361

Royal Company manufactures 22,000 units of part R-3 each year for use on its production line. At this level of activity, the cost per unit for part R-3 is:

Direct materials                               $ 5.20
Direct labor                                        6.00
Variable manufacturing overhead      3.80
Fixed manufacturing overhead         15.00

Total cost per part                         $ 30.00

An outside supplier has offered to sell 22,000 units of part R-3 each year to Royal Company for $43.50 per part. If Royal Company accepts this offer, the facilities now being used to manufacture part R-3 could be rented to another company at an annual rental of $504,000. However, Royal Company has determined that $10 of the fixed manufacturing overhead being applied to part R-3 would continue even if part R-3 were purchasedpurchasedarrow-10x10.png from the outside supplier.

Required:

a.What is the total relevant cost of making the product? (Omit the "tiny_mce_markerquot; sign in your response.)

Total relevant cost of making the product (22,000 units) $

b. What is the total relevant cost of buying the product? (Omit the "tiny_mce_markerquot; sign in your response.)

Total relevant cost of buying the product (22,000 units) $

c. What is the opportunity cost of making instead of buying? (Omit the "tiny_mce_markerquot; sign in your response.)

Total opportunity cost $

d.How much profitsprofitsarrow-10x10.png will increase or decrease if the outside supplier's offer is accepted? (Input the amount as a positive value. Omit the "tiny_mce_markerquot; sign in your response.)

ProfitsProfitsarrow-10x10.png would by $