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 $17,000. 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 a. decrease by $3,700. b. decrease by $5,600.
c. increase by $3,600. d. increase by $5,300. Assume that Troy Instruments does not wish to commit to a rental agreement to rent all idle capacity but could use idle capacity to manufacture another product that would contribute $60,000 per month. If Troy elects to manufacture S1798 in order to maintain quality control, Troy's opportunity cost is a. $(53,000). b. $7,000. c. $(24,000) d. $36,000.
