Brio Motors Company produces a part that is used in the manufacture of one of its products
The unit manufacturing costs of this part, assuming a production level of 6,000 units, are as follows:
Direct materials $5
Direct labor (variable cost) 6
Variable manufacturing overhead 3
Fixed manufacturing overhead 4
Total cost $18
Finn Motors Company has offered to sell 6,000 units of the same part to Brio for $17.50 per unit. Assuming the company has no other use for its facilities and that the fixed manufacturing costs are unavoidable, what should Brio do?
What will be an ideal response
Produce in-house .Direct material $5.00
Direct labor 6.00
Variable manufacturing overhead 3.00
Total variable manufacturing cost $14.00
Cost per unit if outsourced 17.50
Loss per unit if outsourced $(3.50 )
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