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# Relevant costing

* The following information relates to the following three questions.
Fowler Industries produces two components, C15 and C19 for their own use. Data regarding these two follow.
C15 C19
Machine hours required per unit 20 hrs 25 hrs
Standard cost per unit:
Direct material \$250 \$350
Direct labor 500 450
Variable 350 250
Fixed 400 500
Total \$1,500 \$1,550

The company needs 8,000 units of C15 and 11,000 units of C19. Recently, management decided to devote additional machine time to other product lines, resulting in only 310,000 machine hours per year that can be dedicated to production of these components. If production units of any component is less than the required units, the company can buy appropriate number of units from outside. In the market, the components sell at unit prices of \$1,650 for C15 and \$1,700 for C19.

1. To maximize the company's profit, the production and purchase units for each component should be determined. How many units of C19 should be purchased?

To maximize the company's profit, the production and purchase units for each component should be determined. Determine the following:

2. How many units of C15 should be produced; how many units of C15 should be purchased; how many units of C19 should be produced?

3. Assume that the company is considering renting a machine to increase the available machine time. An outside company rents the machine and charges on an hourly basis. What is the maximum price that Fowler is willing to pay per hour for the use of the rented machine?

#### Solution Summary

Excel file contains solution of a relevant costing problem.

\$2.19