Question

Compty manufactures Purt No. 498 for use in its production line acturing oost per unit for 10.000 units of Part No: 498 is follows: Direct Variable direct Marieth a ring Fuad montes tal The Remnant Company has offered to sell 10.000 units of Part No. 498 to Manchester for ($71 unit Manchester will make the decision to buy the port from Remnant if there is an averall savings of at least $45.000 Manchester. If Manchester accepts Remnant's ofter. Sll per unit of the fixed overtiende slocated would be eliminated. Furthermore Manchester has determined that the released facilities could be used to sayo relevar in the manufacture of Part No. 575. For Manchester 16 achieve an overall savings of $45.000, what amount of relevant costs would have to be saved by using the released facilities in the manufacture of Pat No. 5752 Show your calculations COS

Answer 1

Answer: $115000

Solution :

Particulars	Amount	basis
Total cost by internal production	$740000	($53 per unit × 10000 units) + ($21 per unit × 10000 units)
(-)	$810000	($71 per unit × 10000 units) + ($10* per unit × 10000 units)
Savings/(additional) by purchasing	($70000)
(+) savings from released facilities	$x	let the savings from released facilities be $x
Total savings	$45000	given

The equation is : total savings = savings by purchasing + savings from released facilities.

$45000 = -$70000 + $x

$x = $45000 + $70000

$x = $115000

That means the savings from released facilities should be $115000 to attain minimum of $45000 savings.

* when $11 of fixed overhead is eliminated by purchasing from Remenant company, still $10 per unit of overhead has to be incurred.