Question

W.T. Ginsburg Engine Company manufactures part ACT30107 used in several of its engine models. Monthly production costs for 1,090 units are as follows: Direct materials $46,000 Direct labor 10,500 Variable overhead costs 32,500 Fixed overhead costs 22,000 Total costs $111,000 It is estimated that 6% of the fixed overhead costs assigned to ACT30107 will no longer be incurred if the company purchases ACT30107 from the outside supplier. W.T Ginsburg Engine Company has the option of purchasing the part from an outside supplier at $94.75 per unit. If the company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total ________.

Answer 1

Cost that will no longer be incurred = $90320

Explanation:

$

The relevant variable cost

= 46,000 + 10,500 + 32,500 $89,000

Cost of external supply

= 94.75 × 1090= $103,277.50

Increase in of purchase 14,277.50

Savings in fixed cost (6%× 22,000) ( 1320

Net increase in cost if purchased 12,957.50

Cost that will no longer be incurred = 89,000 +1320 = $90320

Cost that will no longer be incurred = $90320