Tasty Bites produces corn chips. The cost of one batch is below: $$\begin{array} { l r }
\text { Direct materials } & \$ 18 \
\text { Direct labor } & 13 \
\text { Variable overhead } & 11 \
\text { Fixed overhead } & 14
\end{array}$$ An outside supplier has offered to produce the corn chips for $30 per batch. How much will Tasty Bites save if it accepts the offer?
A)$15 per batch
B)$12 per batch
C)$26 per batch
D)$1 per batch

Question

Tasty Bites produces corn chips. The cost of one batch is below: $$\begin{array} { l r } 
\text { Direct materials } & \$ 18 \
\text { Direct labor } & 13 \
\text { Variable overhead } & 11 \
\text { Fixed overhead } & 14
\end{array}$$ An outside supplier has offered to produce the corn chips for $30 per batch. How much will Tasty Bites save if it accepts the offer?
A)$15 per batch
B)$12 per batch
C)$26 per batch
D)$1 per batch

Quizplus · Accepted Answer

Tasty Bites will save the fixed overhead cost of $14 per batch if they accept the offer. The total cost of producing a batch internally is $56 ($18 + $13 + $11 + $14). The cost from the supplier is $30. The savings per batch is $56 - $30 = $26. However, since fixed overhead is not saved, the relevant cost is $42 ($18 + $13 + $11), leading to a savings of $12 ($42 - $30).

Tasty Bites Produces Corn Chips An Outside Supplier Has Offered to Produce the Corn Chips