39) Lewis Auto Company manufactures a part for use in its production of automobiles. When 10,000 items are produced, the costs per unit are:


Direct materials$12

Direct manufacturing labour60

Variable manufacturing overhead24

Fixed manufacturing overhead32



Monty Company has offered to sell Lewis Auto Company 10,000 units of the part for $120 per unit. The plant facilities could be used to manufacture another part at a savings of $180,000 if Lewis Auto accepts the supplier’s offer. In addition, $20 per unit of fixed manufacturing overhead on the original part would be eliminated.



a.What is the relevant per unit cost for the original part?

b.Which alternative is best for Lewis Auto Company? By how much?

40) A cafe specializes in short order meals and morning and afternoon snack breaks. It is open from 9:00 am until 4:00 pm. An office manager in a nearby high rise office building offers the owner a contract to provide her 50 employees with afternoon snack breaks for$2.00 each. Each employee would receive a drink and a snack item. The shop has an hourly capacity of 50 customers. The owner estimates that the variable costs of the afternoon breaks would be $1.20 each. Currently the afternoon service, starting at 2:00, is running at only 50 percent capacity, although the morning and noon activities are near capacity. At the present level of operations each meal/snack served is allocated a fixed cost of $0.25.



a.What nonfinancial factors should be considered by the owner?

b.Given your concerns listed in part a., should the offer be accepted? Why or why not?



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