. Buck Company manufactures Part No. 1700 for use in its production cycle. The costs per
unit for 5,000 units for Part No. 1700 are as follows:
Direct materials $ 2
Direct labor 12
Variable overhead 5
Fixed overhead 7
Hollow Company has offered to sell Buck 5,000 units for Part No. 1700 for $27 per unit.
If Buck accepts the offer, some of the facilities presently used to manufacture Part No.
1700 could be used to help with the manufacture of Part No. 2199 and thus save $40,000
in relevant costs in the manufacture of Part No. 2199, and $3 per unit of the fixed
overhead applied to Part No. 1700 would be totally eliminated.
Should Buck Company accept Hollow Company’s offer? Show computations.