Relevant cost of buying a component
Not what you're looking for?
Climate-Control, Inc., manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a thermostat to Climate-Control for $14 per unit. To evaluate this offer, Climate-Control, Inc., has gathered the following information relating to its own cost of producing the thermostat internally:
Per Unit 15,900 Units
per year
Direct materials $4
$63,600
Direct labor 6
95,400
Variable manufacturing overhead
3
47,700
Fixed manufacturing overhead, traceable 3*
47,700
Fixed manufacturing overhead, common, but allocated
8
127,200
Total cost
$24
$381,600
*20% supervisory salaries; 80% depreciation of special equipment (no resale value).
Requirement 1:
(a) What will be the total relevant cost of 15,900 units, if they are manufactured internally?
Total relevant cost = $______________
Requirement 2:
Suppose that if the thermostats were purchased, Climate-Control, Inc., could use the freed capacity to launch a new product. The segment margin of the new product would be $61,000 per year.
(a) What will be the total relevant cost of 15,900 units, if they are manufactured internally?
Total relevant cost = $_________________
Purchase this Solution
Solution Summary
The solution explains how to calculate the relevant cost of making or buying a component.
Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.