Question

ordan Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,200 containers follows. Unit-level materials $ 5,800 Unit-level labor 6,400 Unit-level overhead 3,900 Product-level costs* 9,600 Allocated facility-level costs 26,600 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Jordan for $2.80 each. Required Calculate the total relevant cost. Should Jordan continue to make the containers

Answer 1

Answer:

1. $19,300

2. Yes

Explanation:

1. The computation of relevant cost is shown below:-

= Unit-level materials + Unit-level labor + Unit-level overhead + Product level cost

= $5,800 + $6,400 + $3,900 + $3,200

= $19,300

Working note:-

Product level cost = $9,600 ÷ 3

= $3,200

2. Yes, Therefore Production is lower than buying cost, hence it is better to continue production.

Purchase price =  9,200 × $2.80

= $25,760