The Bremmer Company produces 5,000 units of item ZQ98 annually at a total cost of $200,000. The Daisy Company has offered to supply all 5,000 units of ZQ98 per year for $35 per unit.If Bremmer accepts the offer,$8 per unit of the fixed overhead would be saved.In addition,some of Bremmer's leased facilities could be vacated,reducing lease payments by $30,000 per year.What are the relevant costs for the "make" alternative?
A)$120,000
B)$175,000
C)$190,000
D)$200,000

Question

Quizplus · Accepted Answer

The relevant costs for the "make" alternative include the variable costs and the avoidable fixed costs. The total cost of $200,000 includes both variable and fixed costs. If $8 per unit of fixed overhead can be saved, then the remaining fixed costs are relevant. The lease savings of $30,000 are also relevant. Therefore, the relevant costs are $200,000 - ($8 * 5,000) - $30,000 = $190,000.

The Bremmer Company Produces 5,000 Units of Item ZQ98 Annually