Question

Safety Products currently outsources an electrical switch that is a component in its sprinkler systems. The switches are purchased for $20 each. The company is considering making the switches internally and has conducted a study to determine the costs involved. The costs below are projected annual production costs:

Unit-level material cost $ 3
Unit-level labor cost $ 2
Unit-level overhead $ 1
Batch-level cost (5,000 units per batch) $ 5,000
Product-level supervisory salaries $ 37,500
Allocated facility-level costs $ 20,000
Assume that the company needs 15,000 of the switches, which would be produced in three batches. Assume also that the company will still be operating within the relevant range. If Safety decides to make the parts under these conditions, the total relevant costs will be:___________.
A. $105,000.
B. $142,500.
C. $132,500.
D. $162,500.

Answer 1

Answer : D.) $162,500

Explanation :

Given the following projected annual production cost;

Unit-level material cost $ 3

Unit-level labor cost $ 2

Unit-level overhead $ 1

Batch-level cost (5,000 units per batch) $ 5,000

Product-level supervisory salaries $ 37,500

Allocated facility-level costs $ 20,000

Titak units required = 15,000

Unit level cost per unit = $(3+2+1) = $6

Total unit cost = 15,000 × $6 = $90,000

Total batch level cost = $5000 × 3 = $15,000

Product-level supervisory salaries = $37,500

Allocated facility-level cost = $20,000

Total relevant cost = $(90,000+15,000+37500+20000) = $162,500

Answer 2

B.$142,500

Step-by-step explanation:

Material+Labor+Overhead=3+2+1=$6*15000=$90,000

Batch level costs $5,000*3 =$15,000

Supervisory salaries $37,500

Total relevant costs $142,500