Quiz 16: Costs for Decision Making

Business

According to the provided information, the relevant costs are costs that are different between the current product and the improved product. Calculation of increase in labor and material cost: img Calculation of increase in selling price: img Calculation of increase in profit: img Therefore, the company should not process further for the new product because the difference in profit is negative.

The variable costs for the product are: img img Since, the company has unused production capacity for the 5,000 units, the bottom line is that the offer price should be higher than the total variable costs in order to generate a positive contribution margin. The offer price of $30 per unit is higher than $27. The company will have a positive contribution margin of $3 ($30 - $27). Therefore, the company should accept this order.

According to the provided information, the avoidable costs are: img The cost to buy the part is $4 per unit. The advantage per unit to buy the part is: img Therefore, the company should outsource part of the process at a cost of $4 per unit.

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There is no answer for this question