Waterway Industries produces 1000 units of a necessary component
with the following costs:
Direct Materials | $42000 |
Direct Labor | 23000 |
Variable Overhead | 8000 |
Fixed Overhead | 10000 |
Waterway Industries could avoid $6000 in fixed overhead costs if it
acquires the components externally. If cost minimization is the
major consideration and the company would prefer to buy the
components, what is the maximum external price that Waterway
Industries would accept to acquire the 1000 units externally?
a. $75000
b. $79000
c. $77000
d. $73000
Calculate maximum external price
Direct material | 42000 |
Direct labor | 23000 |
Variable overhead | 8000 |
Fixed overhead | 6000 |
Total | 79000 |
So answer is b) $79000
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