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Relevant costs of manufacturing the parts

54. Golden, Inc., has been manufacturing 5,000 units of Part 10541 which is used in one of its products. At this level of production, the unit product cost of Part 10541 is as follows:

Direct materials $ 2
Direct labor $ 8
Variable manufacturing overhead $ 4
Fixed manufacturing overhead $ 6
Unit product cost $20

Brown Company has offered to sell Golden 5,000 units of Part 10541 for $19 a unit. Golden has determined that two thirds of the fixed manufacturing overhead will continue even if Part 10541 is purchased from Brown. Assume that direct labor is an avoidable cost in this decision. To determine whether to accept Brown's offer, the relevant costs to Golden of manufacturing the parts internally are:
A) $70,000. C) $90,000.
B) $80,000. D) $95,000

Solution Summary

This provides the steps to compute the relevant costs to Golden of manufacturing the parts

$2.19