Car Parts Company Manufactures a Part for Use in Its

Essay

Car Parts Company manufactures a part for use in its production of automobiles. The costs per unit when 10,000 items are produced are:


Auto Company has offered to sell to Car Parts Company 10,000 units of the part for $60. The plant facilities could be used to manufacture another part at a savings of $90,000 if Car Parts accepts the offer. In addition, $10 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 Car Parts Company? By how much?