Problem 8-24 (Part Level Submission) Sandhill Water Co. is a leading producer of

Question

Problem 8-24 (Part Level Submission) Sandhill Water Co. is a leading producer of greenhouse irrigetion systems. Currenty, the company manufectures the timer unit used in each of its systems. Based on an annual production of 40,330 n foilowing unit costs. Direct fixed costs include supervisory and clericals imers, the company has calculated the Direct materials Direct labor Varlable manufacturing overhead Direct need maufacturing overhead Allocated fxed manufacturing overhead 10 (30% salaries, 70% depreciaten) 10 Total unit cost Clifton Clocks has offered to provide the timer units to Sandhill at a price of $34 per unit. If Sandhil accepes the offer, the current timer unit supervisory and clerical staff will be laid off. Attempts: 1 of 15 used (b1) Your rswer is partially correct. Try again reed-up manutaturing faciites to manufacure·new ine ar growing 1 ghes. The company etima e "on sela, oso of the new lights each year at a price of $13. Variable costs of the lights are expected to be $10 per unit. The timer unt supervisory and clerical Celculate the total relevant cost to make the timer units and the nest cost #they accept Clifton's offer staff would be transferred be this new product ine Net relevant cost I they accept CIiton's offer Answert "Total relevant cost to make" part fiom above

Explanation / Answer

Answer b1: Total relevant cost to make the timer unit Direct material $            483,960.00 ($12*40330) Direct labour $            282,310.00 ($7*40330) Variable manufacturing overhead $            120,990.00 ($3*40330) Avoidable fixed cost $            120,990.00 ($3*40330) Total relevant cost $        1,008,250.00 Net revevant cost if they accept Clifton's offer Cost of purchase $        1,371,220.00 ($34*40330) Less: Benefit achived from freed-up space $            279,150.00 (93,050 units*$(13-10)) $        1,092,070.00

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