Question
Turner Ltd is working at full capacity producing 10,000 units of a unique product, RX-8. The manufacturing cost per unit for RX-8 is as below:
Turner Ltd is working at full capacity producing 10,000 units of a unique product, RX-8. The manufacturing cost per unit for RX-8 is as below:
Direct Materials $2 Direct Manufacturing labour $3 Manufacturing overhead $5 Total manufacturing cost $10
Manufacturing overhead cost per unit is based on variable cost per unit of $2 and fixed costs of $30,000 (at full capacity of 10,000 units). Marketing cost per unit, all variable, is $4 and the selling price is $20.
Carson Ltd has asked Turner Ltd to produce 2,000 units of SX-8, a modification of RX-8. SX-8 would require the same manufacturing processes as RX-8. Carson Ltd has offered to pay Turner Ltd $15 per unit of SX-8 plus half the marketing cost per unit.
The opportunity cost to Turner Ltd of producing the 2,000 units of SX-8 for Carson Ltd (assume no overtime is worked) is closest to:
a) $20000 b) $22000 c) $18000 d) $30000 e) None of the available options
Please show workings
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