Question

Hudson Co. is currently producing 1,000 units of a necessary component part by incurring $54,400 in direct materials, $24,000 in direct labor, $14,400 in variable overhead, and $16,000 in fixed overhead. Hudson could avoid $9,600 of fixed overhead if the component is purchased externally. Hudson wishes to minimize costs and would prefer to purchase the component. What is the maximum external price that Hudson should pay to acquire 1,000 units of the component? A : $99,200 B : $94,400 C : $102,400 D : $92,800

Answer 1

Answer:

The correct answer is C.

Explanation:

Giving the following information:

Hudson Co. is currently producing 1,000 units of a necessary component part by incurring $54,400 in direct materials, $24,000 in direct labor, $14,400 in variable overhead, and $16,000 in fixed overhead. Hudson could avoid $9,600 of fixed overhead if the component is purchased externally. Hudson wishes to minimize costs and would prefer to purchase the component.

Make in house:

Unitary variable cost= (54,400 + 24,000 + 14,400)/1000= 92.8

Total cost= 92.8*1000 + 9600= $102,400