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Problem 5 AMMA Co. manufactures part 111 for use in the production of home electrical generators. The cost per unit for 50,000 units of part no. 111 is as follows: Direct materials $6 Direct labor 11 14 18 $49 Production of this part has been troublesome, and AMMA is contemplating purchasing the part form an outside supplier. Thomas, Inc., has offered to provide AMMA with 50,000 units at a cost of $42 per unit. AMMA has determined that if it accepts Thomas's offer, $6 per unit of the allocated fixed overhead indicated above would be totally eliminated. All other fixed overhead would remain. Variable overhead Allocated fixed overhead Required: 1.Should AMMA accept Thomas's offer? (show calculations.) 2. Assume if AMMA accepts the offer from Thomas $6 per unit of the allocated fixed overhead indicated above would be totally eliminated. Also assume they can shift $5 of the unavoidable fixed overhead to assist in the manufacture of another of AMMA's products (product #222), which will result in a manufacturing cost savings for product #222. AMMA has decided that it will buy from Thomas if there is a $35,000 overall advantage in favor of buying. Compute the amount of savings in 222's production costs that would be necessary to generate the $35,000 overall advantage.

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