Richardson Motors uses 10 units of Part No. T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is presented as follows:
|Materials handling (20% of direct materials cost)
|Manufacturing overhead (150% of direct labor)
|Total manufacturing cost
Materials handling, which is not included in 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 Richardson’s annual manufacturing overhead budget is one-third variable and two-thirds fixed Simpson Castings one of Richardson’s reliable vendors, has offered to supply T305 at a unit price of $30,000.
Assume Richardson Motors is able to rent all idle capacity for $50,000 per month. If Richardson decides to purchase the 10 units from Simpson Castings Richardson’s monthly cost for T305 would