Question

Melody Manufacturing is currently producing 1,000 component parts by incurring costs of $68,000 for direct materials, $30,000 for direct labor, $18,000 for variable overhead, and $20,000 for fixed overhead. Melody could eliminate $12,000 of fixed overhead costs if the components were purchased externally. Melody wishes to minimize costs and would prefer to purchase the components. What is the maximum amount Melody should pay to acquire 1,000 components?

Answer 1

Answer:

$124,000

Explanation:

The maximum amount that Melody should pay to acquire 1,000 components is the total of all relevant costs directly attributable to manufacture the components. Such as;

Direct materials $68,000

Direct labor 30,000

Variable overhead 18,000

Fixed overhead 8,000

($20,000-$12,000) _______

$124,000