Question
17) Kaiman Company currently produces a key part at a total cost of $210,000. Annual variable costs are $170,000. Of the annual fixed costs, $10,000
17) Kaiman Company currently produces a key part at a total cost of $210,000. Annual variable costs are $170,000. Of the annual fixed costs, $10,000 relate specifically to this part. The remaining fixed costs are unavoidable.
Another manufacturer has offered to supply the part annually for $200,000. The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $30,000 per year. Alternatively, the facilities could be rented out at $60,000 per year. Given all of these alternatives, what is Kaiman Company's lowest net relevant cost for the parts?
A) $130,000
B) $140,000 this is the right answer, please explain why
C) $170,000
D) $180,000
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