Wallaby Company manufactures a part for its production cycle. The costs per unit
ID: 2417360 • Letter: W
Question
Wallaby Company manufactures a part for its production cycle. The costs per unit for 30,000 units of the part are as follows:
Per Unit
Direct materials
$4.50
Direct labor
9.00
Variable factory overhead
2.50
Fixed factory overhead
2.00
Total costs
$18.00
The fixed factory overhead costs are unavoidable. Assume no other use for the facilities. What is the highest price Wallaby Company should pay for the part from an outside supplier?
$13.50
$18.00
$16.00
$15.50
Per Unit
Direct materials
$4.50
Direct labor
9.00
Variable factory overhead
2.50
Fixed factory overhead
2.00
Total costs
$18.00
Explanation / Answer
ANSWER = C) $16.00
The fixed factory overhead costs are unavoidable, hence it is ignored in decision making
the highest price wallaby company should pay for the part from an outside supplier = Direct material + direct labor + variable factory overhead
= $4.5 + $ 9 + $2.5
= $16
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