Cost Accounting MCQ 1

Nook Company currently produces a key part at a total cost of $280,000. Annual variable costs are $205,000. Of the annual fixed costs, $15,000 relate specifically to this part. The remaining fixed costs are unavoidable.

Another manufacturer has offered to supply the part annually for $240,000. The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $70,000 per year. Alternatively, the facilities could be rented out at $90,000 per year. Given all of these alternatives, what is Nook Company's lowest net relevant cost for the parts?

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$135,000

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$170,000

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$150,000

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$220,000

Midway Company manufactures a part for its production cycle. The costs per unit for 38,000 units of the part are as follows:

	Per Unit
Direct materials	$6.00
Direct labor	9.00
Variable factory overhead	2.00
Fixed factory overhead	5.00
Total costs	$22.00

The fixed factory overhead costs are unavoidable. Assume no other use for the facilities. What is the highest price Midway Company should pay for the part from an outside supplier?