Essay
Lewis S. Gray Inc. manufactures a part for use in its production of art deco furniture. When 10,000 items are produced, the costs per unit are:
Colonial Accents Company has offered to sell to Lewis S. Gray 10,000 units of the part for $125 per unit. The plant facilities could be used to manufacture another part at a savings of $180,000 if Lewis S. Gray accepts the supplier's offer. In addition, $30 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 S. Gray Company? By how much?
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