Coronado Music produces 60000 CDs on which to record music. The CDs have the following costs:...
Coronado Music produces 60000 CDs on which to record music. The
CDs have the following costs:
| Direct Materials | $17500 |
| Direct Labor | 20000 |
| Variable Overhead | 4000 |
| Fixed Overhead | 7000 |
Coronado could avoid $4000 in fixed overhead costs if it acquires
the CDs externally. If cost minimization is the major consideration
and the company would prefer to buy the 60000 units externally,
what is the maximum amount that Coronado should pay to purchase the
units?
a. $41500
b. $48500
c. $44500
d. $45500
Homework Answers
Maximum amount that company can afford to pay is the avoidable cost of making.
Avoidable cost = Direct material + Direct labor + Variable overhead + Fixed overhead
= 17,500+20,000+4,000+4,000
= $45,500
Correct option is d.
Kindly comment if you need further assistance. Thanks‼!
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