The Pleasantville Company Makes 20,000 Units Per Year of a Part

Multiple Choice

The Pleasantville Company makes 20,000 units per year of a part used in production.The unit product cost is as follows: $\begin{array}{lr}\text { Direct materials } & \$ 6.20 \\\text { Direct labor } & 2.30 \\\text { Variable Manufacturing Overhead } & 1.20 \\\text { Fixed Manufacturing Overhead } & .80\\\text { Unit product cost }&\$10.50\end{array}$ An outside supplier has offered to sell the company the same part at a cost of $9.00 per unit.If the company purchases the part only half of the fixed overhead would be avoided.How much of the unit product cost is relevant in making this decision?

A) $9.70
B) $10.50
C) $2.30
D) $10.10