Question

Omron Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 10,000 containers follows. Unit-level materials $ 7,500 Unit-level labor 8,250 Unit-level overhead 5,250 Product-level costs* 13,500 Allocated facility-level costs 33,000 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Omron for $3.00 each. Required Calculate the total relevant cost. Should Omron continue to make the containers

Answer 1

a)

Total relevant cost

unit level materials 7,500

unit level labor 8,250

unit level overhead 5,250

product level cost(13,500*1/3) 4,500

Total relevant cost 25,500

cost of buying (10,000*3)= 30,000

Should Omron continue to make the containers Yes