Question

Munafo Corporation is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 6,500 units of component VGI. Each unit of VGI requires 1 unit of material I57 and 5 units of material M97. Data concerning these two materials follow: Material Units in Stock Original Cost Per Unit Current Market Price Per Unit Disposal Value Per Unit I57 2,400 $9.10 $9.40 $8.95 M97 33,960 $4.70 $4.70 $3.50 Material I57 is in use in many of the company's products and is routinely replenished. Material M97 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up. What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product VGI?

Answer 1

Answer:

I57 =1* 9.40 = 9.40

M97 =5*3.50 = 17.50

Total relevant cost = 26.90

Minimum acceptable price for 6,500 will be 26.90*6500 units =174850