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

Total$128

 

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.

 

Required:

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.

 

Required:

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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