Question

The Camel Company produces 11,300 units of item Roto 454 annually at a total cost of $242,000. Direct materials $ 33,000 Direct labor 68,000 Variable overhead 58,000 Fixed overhead 83,000 Total $ 242,000 The Yukon Company has offered to supply 11,300 units of Roto 454 per year for $18 per unit. If Camel accepts the offer, $3 per unit of the fixed overhead would be saved. In addition, some of Camel's facilities could be rented to a third party for $16,300 per year. What are the relevant costs for the "make" alternative

Answer 1

$378,700

Step-by-step explanation:

The computation of relevant costs is shown below:-

Fixed Overhead = 11,300 × $18

= $203,400

Relevant Costs = Direct Materials + Direct Labor + Variable Overhead + Avoidable Fixed Overhead + Rent

= $33,000 + $68,000 + $58,000 + $203,400 + $16,300

= $378,700

Therefore for computing the relevant cost we simply applied the above formula.