[CMA Adapted] Troy Instruments uses ten units of Part Number
S1798 each month in the production of scientific equipment. The
unit cost to manufacturing one unit of S1798 is presented
below.
Direct materials $ 4,000
Materials handling (10% of direct materials cost) 400
Direct manufacturing labor 6,000
Indirect manufacturing (200% of direct labor) 12,000
Total manufacturing cost $22,400
Materials handling represents the direct variable costs of the
Receiving Department that are applied to direct materials and
purchased components on the basis of their cost. This is a separate
charge in addition to indirect manufacturing cost. Troy’s annual
indirect manufacturing cost budget is one-fourth variable and
three-fourths fixed. Duncan Supply, one of Troy’s reliable vendors,
has offered to supply Part Number S1798 at a unit price of
$18,000.
If Troy purchases the S1798 units from Duncan, the capacity
Troy used to manufacture these parts would be idle. Should Troy
decide to purchase the parts from Duncan, the unit cost of S1798
would _______ by $_______.
A.
decrease by $3,700.
B.
increase by $6,400.
C.
increase by $5,300.
D.
decrease by $5,600.