Question

Zachary Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,100 containers follows. Unit-level materials $ 6,400 Unit-level labor 6,400 Unit-level overhead 3,800 Product-level costs* 8,400 Allocated facility-level costs 28,000 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Zachary for $2.70 each. Required Calculate the total relevant cost. Should Zachary continue to make the containers

Answer 1

Zachary Electronics

Zachary should continue to make the containers. It is cheaper to make than to buy from Russo Container Company.

Step-by-step explanation:

a) Data and Calculations:

Production units = 9,100 containers

Unit-level materials $ 6,400

Unit-level labor 6,400

Unit-level overhead 3,800

Total unit-level costs $16,600

Product-level costs* 8,400

Allocated facility-level costs 28,000

Relevant or avoidable costs:

Unit-level materials $ 6,400

Unit-level labor 6,400

Unit-level overhead 3,800

Total unit-level costs $16,600

Product-level costs* 2,800 ($8,400 * 1/3)

Total relevant costs = $19,400 (to make)

Relevant cost to buy:

Offer from Russo Container company = $2.70 per container

Total cost from outside supplier = $24,500 ($2.70 * 9,100)