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Royal Company manufactures 20,000 units of Part R-3 each year for use in its finished...

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Accounting

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Royal Company manufactures 20,000 units of Part R-3 each year for use in its finished products. At this level of activity, the costs per unit for Part R-3 are as follows: An outside supplier has offered to seli 20.000 units of Part R.3 to Royal Company for $23.50 per part. If Royal Company accepts the supplier's offer, the facitities now being used to manufacture Part R-3 could be rented out to another company for $150,000 per year. The costs of producing Part R-3 are avoidable: however. Royal Company has determined that 56 of the fxed manufacturing overhead being applied to Part R3 would continue even if Royal Compary purchases Part R-3 from the outside supplier: Royal Company should: buy the part because there is 530,000 net advanage in doine so. buy the part because there is a $60,000 net advantage in doing 30 , make the part because there is a $90.000 net advantage in doine so. do either. The relevant cost of making the part is the same as burying it

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