Question
Hometown Caf sells 30 dozen cupcakes each month. The costs associated with each dozen consist of $2.05 in direct materials, $2.75 in direct labor, $1.45
Hometown Caf sells 30 dozen cupcakes each month. The costs associated with each dozen consist of $2.05 in direct materials, $2.75 in direct labor, $1.45 in variable overhead, and $1.30 in fixed overhead. Bob's Baking Company has offered to sell the caf 30 dozen cupcakes per month for $200. If Hometown accepts the offer, direct labor hours will be reduced by 20%, as the employee currently responsible for making the cupcakes will be assigned another task but will no longer need to work overtime. Note that Hometown's variable overhead is directly related to its number of direct labor hours. In this scenario, what is Hometown's relevant cost per dozen cupcakes?
$3.36
$5.55
$5.41
$4.25
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