Riedel Motors uses ten units of Part No. T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is presented below:

Direct material ...................$ 2,000

Material handling (20% of direct materials) ......... 400

Direct labor .................... 16,000

Manufacturing overhead (150% of direct labor) ...... 24,000

Total manufacturing cost ............... $42,400

Material handling, which is not included in the manufacturing overhead, represents the direct variable costs of the receiving department that are applied to direct materials and purchased components on the basis of their cost. Riedel’s annual manufacturing overhead budget is one-third variable and two-thirds fixed. Precision Tool Company, one of Riedel’s reliable vendors, has offered to supply T305 at a unit price of $30,000.

a. If Riedel Motors purchases the ten T305 units from Precision Tool Company, the capacity Riedel used to manufacture these parts would be idle. Compute the change in the out-of-pocket cost per unit to Riedel, if it decided to purchase the parts from Precision Tool Company.

b. Assume that Riedel Motors is able to rent all idle capacity for $50,000 per month. If Riedel decides to purchase the ten units from Precision Tool Company, what would be the change in the total monthly cost for T305?