Ruth Company produces 1,000 units of a necessary component with the following costs: $$\begin{array} { l r }
\text { Direct Materials } & \$ 27,000 \
\text { Direct Labor } & 16,000 \
\text { Variable Overhead } & 4,000 \
\text { Fixed Overhead } & 7,000
\end{array}$$ None of Ruth Company's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $8,000 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 Ruth Company would be willing to accept to acquire the 1,000 units externally?
A) $46,000
B) $58,000
C) $51,000
D) $55,000

Question

Ruth Company produces 1,000 units of a necessary component with the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 27,000 \
\text { Direct Labor } & 16,000 \
\text { Variable Overhead } & 4,000 \
\text { Fixed Overhead } & 7,000
\end{array}$$ None of Ruth Company's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $8,000 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 Ruth Company would be willing to accept to acquire the 1,000 units externally?
A) $46,000
B) $58,000
C) $51,000
D) $55,000

Quizplus · Accepted Answer

The Answer of Ruth Company produces 1,000 units of a necessary component with the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 27,000 \
\text { Direct Labor } & 16,000 \
\text { Variable Overhead } & 4,000 \
\text { Fixed Overhead } & 7,000
\end{array}$$ None of Ruth Company's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $8,000 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 Ruth Company would be willing to accept to acquire the 1,000 units externally?
A) $46,000
B) $58,000
C) $51,000
D) $55,000

Ruth Company Produces 1,000 Units of a Necessary Component with the Following