Liffick Corporation is a specialty component manufacturer with idle capacity. Ma
ID: 2420412 • Letter: L
Question
Liffick Corporation is a specialty component manufacturer with idle capacity. Management would like to use its unused capacity to generate additional profits. A potential customer has offered to buy 7,800 units of component VFG. Each unit of VFG requires 8.00 units of material C79 and 6.00 units of material X70. Data concerning these two materials follow: Material Units in Stock Original Cost Per Unit Current Market Price Per Unit Disposal Value Per Unit C79 34,020 $5.40 $4.95 $4.70 X70 32,660 $10.90 $11.20 $9.95 Material C79 is in use in many of the company's products and is routinely replenished. Material X70 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up. What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product VFG?
Explanation / Answer
Ans: Here, Two types of material(i.e.,C79 and X70) required for production of one unit of VFG.
C79 = 8 Units
X70= 6 Units
C79 is used in many products of the company so, we have to consider the Current market price for C79 i.e., $4.95
X70 is no longer used by the company in any of its normal products so, we have to consider the Disposal price per unit i.e., $9.95
Total no. of C79 items required =7800*8=62400 units
Total no. of X70 items required =7800*6=46800 units
No. of C79 item to be bought from market = 62400-34020=28380 units.
No. of X70 items to be bought from market = 46800-32660=14140 units.
Total Material Cost:
Material C79 (34020*4.95)+(28380*4.95) = $308880
Material 70 (32660*9.95)+(14140*11.2) = $483335
Total Material Cost = $792215
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