Red Company produces 1000 units of a necessary component with the following costs: $$\begin{array} { l r }
\text { Direct Materials } & \$ 34,000 \
\text { Direct Labor } & 15,000 \
\text { Variable Overhead } & 8,000 \
\text { Fixed Overhead } & 10,000
\end{array}$$ None of Red fixed overhead costs can be reduced but another product could be made that would increase profit contribution by $12000 if the components were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the components what is the maximum external price that Red Company would be willing to accept to acquire the 1000 units externally?
A) $55000
B) $46000
C) $79000
D) $69000

Question

Red Company produces 1000 units of a necessary component with the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 34,000 \
\text { Direct Labor } & 15,000 \
\text { Variable Overhead } & 8,000 \
\text { Fixed Overhead } & 10,000
\end{array}$$ None of Red fixed overhead costs can be reduced but another product could be made that would increase profit contribution by $12000 if the components were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the components what is the maximum external price that Red Company would be willing to accept to acquire the 1000 units externally?
A) $55000
B) $46000
C) $79000
D) $69000

Quizplus · Accepted Answer

The Answer of Red Company produces 1000 units of a necessary component with the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 34,000 \
\text { Direct Labor } & 15,000 \
\text { Variable Overhead } & 8,000 \
\text { Fixed Overhead } & 10,000
\end{array}$$ None of Red fixed overhead costs can be reduced but another product could be made that would increase profit contribution by $12000 if the components were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the components what is the maximum external price that Red Company would be willing to accept to acquire the 1000 units externally?
A) $55000
B) $46000
C) $79000
D) $69000

Red Company Produces 1000 Units of a Necessary Component with the Following