Lewis Auto Company manufactures a part for use in its production of automobiles.  When 10,000 items are produced,

the costs per unit are:

Direct materials                              $12

Direct manufacturing labor               60

Variable manufacturing overhead      24

Fixed manufacturing overhead          32

Total                                              $128

Monty Company has offered to sell Lewis Auto Company 10,000 units of the part for $120 per unit.  The plant facilities could be used to manufacture another part at a savings of $180,000 if Lewis Auto accepts the supplier’s offer.  In addition, $20 per unit of fixed manufacturing overhead on the original part would be eliminated.

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