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Harrison Enterprises currently produces 8,000 units of Part B13. A wholesaler offers to sell the parts to Harrison for $31 per unit. The per unit costs of manufacturing B13 by Harrison are as shown below. Direct materials Direct labor Factory rent Administrative costs General factory overhead (allocated) Note that 50% of the administrative costs would be avoided if Harrison buys the parts. (Hint: There are other non-avoidable costs in the list.) What will be the incremental costs (or cost savings) if Harrison buys the parts from the wholesaler instead of manufacturing them itself? (Enter a negative number if it is a cost savings. A positive answer means an increase in cost.) Incremental cost per unit calculation Cost for buying the parts Cost savings if production discontinued: Direct materials Direct labor 50% of administrative costs Total cost savings Incremental cost per unit $12 9 7 B C D A EF E 10 7

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Harrison Enterprises currently produces 8,000 units of Part B13. A wholesaler offers to sell the parts to Harrison for $31 per unit. The per unit costs of manufacturing B13 by Harrison are as shown below. Note that 50% of the administrative costs would be avoided if Harrison buys the parts. (Hint: There are other non-avoidable costs in the list.) What will be the incremental costs (or cost savings) if Harrison buys the parts from the wholesaler instead of manufacturing them itself? (Enter a negative number if it is a cost savings. A positive answer means an increase in cost.)

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