Question

Crigui Music produces 60,000 CDs on which to record music. The CDs have the following costs:

Direct Materials $11,000
Direct Labor 15,000
Variable Overhead 3,000
Fixed Overhead 7,000

Crigui could avoid $4,000 in fixed overhead costs if it acquires the CDs externally. If cost minimization is the major consideration and the company would prefer to buy the 60,000 units externally, what is the maximum external price that Crigui would expect to pay for the units?

Answer 1

The correct answer is $33,000.

Step-by-step explanation:

According to the scenario, the computation of the given data are as follows:

If company buy the CD's externally than only Fixed OH could be avoided,

while other remains the same.

So, we can calculate the external price by using following formula:

Maximum external price = Direct Materials + Direct Labor + Variable Overhead + Fixed Overhead

By putting the value, we get

Maximum external price = $11,000 + $15,000 + $3,000 + $4,000

= $33,000