Cooper Co.makes and uses 5,000 components each year in its manufacturing operations.An outside supplier has offered to supply the components to Anderson at $66 per unit.Anderson's production costs are as follows: If Cooper accepts the order,$8 of fixed overhead per unit will be eliminated.
-What is the relevant cost to produce one unit?
A)$52
B)$60
C)$78
D)$86

Question

Cooper Co.makes and uses 5,000 components each year in its manufacturing operations.An outside supplier has offered to supply the components to Anderson at $66 per unit.Anderson's production costs are as follows: If Cooper accepts the order,$8 of fixed overhead per unit will be eliminated.
-What is the relevant cost to produce one unit?
A)$52 
B)$60 
C)$78 
D)$86

Quizplus · Accepted Answer

The relevant cost to produce one unit is the variable cost per unit minus the fixed overhead that will be eliminated if Cooper accepts the order.

Variable cost per unit = direct materials + direct labor + variable overhead
Variable cost per unit = $30 + $22 + $12 = $64

Relevant cost to produce one unit = variable cost per unit - fixed overhead per unit
Relevant cost to produce one unit = $64 - $8 = $56

Since the supplier's offer is $66 per unit, it is not cost-effective for Cooper to accept the offer. Therefore, the best choice is to continue manufacturing the components in-house.

Cooper CoMakes and Uses 5,000 Components Each Year in Its Manufacturing