Patterson Manufacturing Company manufactures part #52749 for use in its production cycle. The costs per unit for 10,000 units of part #52749 are as follows:
Direct materials  $3
Direct labor  $15
Variable overhead  $6
Fixed overhead  $8
Blundell Company has offered to sell Patterson 10,000 units of part #52749 for $30 per unit. If Patterson accepts Blundell’s offer, the released facilities could be used to save $45,000 in relevant costs in the manufacture of part #60657. In addition, $5 per unit of the fixed overhead applied to part #52749 would be totally eliminated.
Required:
  1. What are the total relevant costs to manufacture part #52749?
  2. What are the total relevant costs to buy part #52749?
  3. What alternative is more desirable and by what amount?
  4. Suppose that the purchased part is of lower quality than the part being produced internally. How would that influence your decision? What if the price of the part is reduced to $25 per unit?
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