Song, a division of Carolina Enterprises, currently makes 110,000 units of a pro

Question

Song, a division of Carolina Enterprises, currently makes 110,000 units of a product that has created a number of manufacturing problems. Song's costs follow.

  
If Song were to discontinue production, fixed manufacturing costs would be reduced by 80%. The relevant cost of deciding whether the division should purchase the product from an outside supplier is:

$580,000.

$793,600.

$616,400.

$725,600.

$762,000.

  Manufacturing costs:         Variable $ 580,000         Fixed 182,000   Allocated corporate administrative cost 68,000

Explanation / Answer

Ans D 725600

Relevant costs are the variable manufacturing costs of $580,000 and 80% of the $182,000 fixed manufacturing costs, totaling $725,600 Variable 580000 Fixed (182000*0.8) 145600 Total 725600

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