Question
Test Company produces a component part included in its final product. A supplier has contacted the company with an offer to provide the component part
Test Company produces a component part included in its final product. A supplier has contacted the company with an offer to provide the component part for $60 per unit. In evaluating the offer, Test Company identified the following costs to produce the component.
Direct materials | $25 per unit |
Direct labor | $10 per unit |
Variable overhead | $15 per unit |
Fixed overhead | $10,000 per month |
Test Companys average monthly demand is 4,000 components per month.
Assume that 20% of the fixed overhead can be avoided if Test Company discontinues production of the component.
Determine the total relevant cost of producing the component.
Note: Give your answer using dollar signs and commas but not decimal points (cents).
Example: $12,345
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started