U-RIDE, Inc. currently produces the electric engines that are used in golf carts made and sold by the Company. Electco has offered to sell the electric engines to U-RIDE at a price of $200 each.

U-RIDE, Inc. currently produces the electric engines that are used in golf carts made and sold by the Company. Electco has offered to sell the electric engines to U-RIDE at a price of $200 each.

Current production information follows:

Unit-level material and labor	$	175
Facility-level depreciation of manufacturing equip.	$	5,000	/month
Product-level engine production supervisor's salary	$	2,000	/month
Annual facility-level utilities	$	15,000

U-RIDE is currently operating profitably producing and selling 2,000 engines a year using 90% of its manufacturing capacity. Which of the following is true?

Explanation

Relevant Cost to Make:*
Unit-level material cost	$	175
Product-level Cost [($2,000 × 12 months) ÷ 2,000 engines]		12
Total	$	187

*The depreciation is a sunk cost that is not relevant. The facility-level utility cost will be incurred regardless of whether the motors are made or outsourced and are therefore, not relevant. If URIDE outsources the engines the company will incur additional cost of $13 per unit ($200 to buy - $187 to make).

thanks