Eric Holder, Inc. manufactures 28,000 units of part Tr-12 each year for use on its production line. At this level of activity, the cost per unit for part Tr-12 is:
Direct materials $ 5.70
Direct labor 6.00
Variable manufacturing overhead 2.60
Fixed manufacturing overhead 15.00
Total cost per part $ 29.30
An outside supplier has offered to sell 28,000 units of part Tr-12 each year to Eric Holder, Inc. for $42.50 per part. If Eric Holder, Inc accepts this offer, the facilities now being used to manufacture part Tr-12 could be rented to another company at an annual rental of $654,600. However, Eric Holder, Inc. has determined that $10 of the fixed manufacturing overhead being applied to part Tr-12 would continue even if part Tr-12 were purchased from the outside supplier.
Required:
a. What is the total relevant cost of making the product? (Omit the "$" sign in your response.)
b. What is the total relevant cost of buying the product? (Omit the "$" sign in your response.)
c. What is the opportunity cost of making instead of buying? (Omit the "$" sign in your response.)
d. How much profits will increase or decrease if the outside supplier's offer is accepted? (Input the amount as a positive value. Omit the "$" sign in your response.)