Question

Vaughn Manufacturing, Inc.currently manufactures a wicket as its main product. The costs per unit are as follows: Direct materials and direct labor $14 Variable overhead 5 Fixed overhead 8 Total $27 The fixed overhead is an allocated common cost. How much is the relevant cost of the wicket?

Answer 1

Answer:

Relevant cost = $19

Explanation:

Relevant cost refers to the cost which is avoidable on the addition of any other unit, here the direct cost of material, and labor $14 and variable overhead of $5 per head is avoidable straight as is related to per unit.

Further fixed cost of $8 each allocated is already incurred and not relevant for the decision for any additional unit.

Therefore, in the given case relevant cost = $14 + $5 = $19

Since that is the only avoidable cost.

Fixed cost has already been incurred and cannot be avoided.

Relevant cost = $19