Question

Crigui Music produces 60000 CDs on which to record music. The CDs have the following costs: Direct Materials $13000 Direct Labor 15000 Variable Overhead 3000 Fixed Overhead 7000 Crigui 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 Crigui should pay to purchase for the units?

Answer 1

Answer:

$35,000 is the maximum amount that Crigui should pay

Explanation:

Total cost if manufactured internally;

Direct materials $13,000

Direct labor 15,000

Variable overhead 3,000

Fixed overhead 7,000

————

Total cost $38,000

Therefore, $38,000 - $3,000 (unavoidable cost) = $35,000