A. This answer overlooks the rent of the idle capacity.

B. Total per unit manufacturing cost for the T305 is $42,400. Since the overhead of $24,000 is 1/3 variable and 2/3 fixed, $16,000 of that would be fixed and would continue if Richardson purchases the T305 outside and $8,000 of it would be variable and would be avoidable. Thus, the total avoidable variable manufacturing cost per unit is $26,400 ($2,000 DM, $16,000 DL, $400 materials handling, and $8,000 variable manufacturing OH).

If Richardson Motors purchases the units from Simpson Castings then the per unit variable cost will be $36,000 ($30,000 purchase price + $6,000 material handling cost applied [20% handling cost × $30,000 per unit]. Therefore, by purchasing from Simpson Castings the per unit cost of the T305 component will increase $9,600 ($36,000 - $26,400). By purchasing 10 units per month, total monthly cost would increase by $96,000 ($9,600 × 10). But, if the idle capacity can be rented for $50,000 per month, then the monthly net cost would be reduced to $46,000 ($96,000 - $50,000).

C. An answer of $14,000 does not include the materials handling cost for the purchased components.

D. An answer of $64,000 is the difference between the total cost to manufacture the T305 and the total cost to purchase the T305. However, it does not consider the fixed manufacturing cost, which will continue whether or not the T305 is being manufactured. It also does not include the rental income.