Ruth Company produces 1,000 units of a necessary component with the following co
ID: 2347042 • Letter: R
Question
Ruth Company produces 1,000 units of a necessary component with the following costs:Direct Materials..................................$24,000
Direct Labor........................................16,000
Variable Overhead..................................4,000
Fixed Overhead......................................7,000
Ruth Company could avoid $3,000 in fixed overhead costs if it acquires the components externally. If cost minimization is the major consideration and the company would prefer to buy the components, what is the maximum external price that Ruth Company would accept to acquire the 1,000 units externally?
a $48,000
b $44,000
c $51,000
d $47,000
Explanation / Answer
a $48,000 in this case if company buy 1,000 units externally then they can avoid $ 3,000 then total costs =direct material +direct labor +variable overhead +fixed overhead =24,000+16,000+4,000+(7,000-3,000) = $ 48,000 so maximum prize company have to pay =$ 48,000 (answer)
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