Super Cooper Company currently produces a key part at a total cost of $210,000. Variable costs are $170,000. Of the fixed cost, $10,000 relate specifically to this part. The remaining fixed costs are unavoidable.
Another manufacturer has offered to supply the part for $190,000. The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $30,000. Alternately, the facilities could be rented out at $60,000. Given all of these alternatives, is Super Cooper's lowest net cost for the part.
A) $170,000
B) $180,000
C) $130,000
D) $190,000

Question

Quizplus · Accepted Answer

The lowest net cost is $130,000, which is the cost of buying the part ($190,000) minus the rental income ($60,000).

Super Cooper Company Currently Produces a Key Part at a Total