Crenshaw Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows: $$\begin{array} { l l }
\text { Direct materials } & \$ 108,000 \
\text { Direct labor } & 156,000 \
\text { Variable factory overhead } & 72,000 \
\text { Fixed factory overhead } & \underline { 168,000 } \
\text { Total costs } & \underline { \$ 504,000 }
\end{array}$$ Of the fixed factory overhead costs, $72,000 is avoidable. Assuming no other use of their facilities, the highest price that Crenshaw Company should be willing to pay for 5,000 units of the part is:
A) $432,000
B) $288,000
C) $504,000
D) $336,000

Question

Crenshaw Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows: $$\begin{array} { l l } 
\text { Direct materials } & \$ 108,000 \
\text { Direct labor } & 156,000 \
\text { Variable factory overhead } & 72,000 \
\text { Fixed factory overhead } & \underline { 168,000 } \
\text { Total costs } & \underline { \$ 504,000 }
\end{array}$$ Of the fixed factory overhead costs, $72,000 is avoidable. Assuming no other use of their facilities, the highest price that Crenshaw Company should be willing to pay for 5,000 units of the part is:
A) $432,000
B) $288,000
C) $504,000
D) $336,000

Quizplus · Accepted Answer

The highest price Crenshaw Company should be willing to pay is the total cost minus the avoidable fixed costs, which is $504,000 - $72,000 = $432,000.

Crenshaw Company Produces a Part That Is Used in the Manufacture