Winder Corporation is a specialty component manufacturer with idle capacity. Man

Question

Winder Corporation is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 3,000 units of component QEA. Each unit of QEA requires 5 units of material F85 and 5 units of material E71. Data concerning these two materials follow: Current Units Original Market Disposal in Cost Per Price Per Value Per Material Stock Unit Unit Unit F85 7404.90 4.754.20 E71 13,680 5.00 4.70 3.60 Material F85 is in use in many of the company's products and is routinely replenished. Material E71 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 QEA? Multiple Choice $126,702

Explanation / Answer

Answer is $ 126,702.

The explanation is as follows:

For producing 3000 units of QEA, we require following materials:

F 85 (3000 units *5 units) 15000 units E71 (3000 units *5 units) 15000 units Now, F 85 is in regular use. Therefore, cost of inventory for F85 will be taken as $ 4.75 (current market price) And E71 is no longer usable, therefore, it has to be disposed off Total Units of E71 required 15000 Less: Available in stock 13680 Units to be purchased of E71 1320 Available units of E71 to be valued at disposal value i.e. 3.60 per unit Units to be purchased of E71 to be taken at current market price i.e. $ 4.70 per unit Therefore, Material inventory cost for the order will be: Cost of F85(15,000 units@4.75) 71250 Cost of E71(13680 units@3.60) 49248 Cost of E71(1320 units@4.70) 6204 Total material cost 126702

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