The CJP Company produces 10,000 units of item S10 annually at a total cost of $190,000. The XYZ Company has offered to supply 10,000 units of S10 per year for $18 per unit.If CJP accepts the offer,$4 per unit of the fixed overhead would be saved.In addition,some of CJP's facilities could be rented to a third party for $15,000 per year.What are the relevant costs for the "make" alternative?
A)$160,000
B)$165,000
C)$175,000
D)$185,000

Question

Quizplus · Accepted Answer

The relevant costs for the "make" alternative include the total cost of producing the units minus the savings from the fixed overhead. The total cost is $190,000, and the savings from the fixed overhead is $4 per unit for 10,000 units, which is $40,000. Therefore, the relevant costs are $190,000 - $40,000 = $150,000. However, we must also consider the opportunity cost of renting the facilities, which is $15,000. So, the total relevant costs are $150,000 + $15,000 = $165,000.

The CJP Company Produces 10,000 Units of Item S10 Annually