Question
Lily V. produces frozen, gluten-free, pizzas which are sold to grocery and convenience stores. Currently, Lily makes all the pizza dough in-house, but has received
Lily V. produces frozen, gluten-free, pizzas which are sold to grocery and convenience stores. Currently, Lily makes all the pizza dough in-house, but has received an offer from Dough Crafters to supply her with 24,000 pizza dough units (each dough unit equals one pizza) at a cost of $48,960 for the upcoming period. Lilys cost to make one pizza dough unit is $0.14 for direct materials, $.68 for direct labor, $1.02 for variable overhead, and $.94 for fixed overhead. If Lily outsources her pizza dough, she will use the dough-making facilities to begin producing frozen, gluten-free cinnamon rolls. Lily expects that the cinnamon rolls will generate an annual contribution margin of $16,280. What is the relevant cost to outsource the pizza dough?
A : $32,680
B : $50,440
C : $48,960
D : $65,240
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