Question

Benson Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,100 containers follows: Unit-level materials Unit-level labor Unit-level overhead Product-level costs* Allocated facility-level costs $ 6,000 6,700 3,700 9,900 26,900 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Benson for $2.50 each. Required a. Calculate the total relevant cost. Should Benson continue to make the containers? b. Benson could lease the space it currently uses in the manufacturing process. If leasing would produce $12,000 per month, calculate the total avoidable costs. Should Benson continue to make the containers? Total relevant cost Should Benson continue to make the containers? Total avoidable cost Should Benson continue to make the containers?

Answer 1

Part a)
Calculation of Total Relevant Cost for 9100 Units
Unit Level Material Cost	6000
Unit Level Labor	6700
Unit Level Overhead	3700
Product Level Cost	3300
Total Relevant Cost	19700
Purchase Cost of Container	22750
The Company should continue the Production and do not buy the container from Russo container co.
Part (b)
Calculation of Avoidable cost
Unit Level Material Cost	6000
Unit Level Labor	6700
Unit Level Overhead	3700
Product Level Cost	3300
Total	19700
Purchases cost of Container	22750
Less: Lease Rental Receivable	12000
Cost If Goods Purchased from Russo	10750
The Company should discontinue the Production and buy the container from Russo container co.