Fird Company manufactures a part for its production cycle.The costs per unit for 10,000 units of this part are as follows: $\begin{array}{lr}
\text { Direct materials } & \$ 20 \
\text { Directlabor } & 15 \
\text { Variable factory overhead } & 16 \
\text { Fixed factory overhead } & 15 \
\text { Total costs } & \$ 66
\end{array}$ The fixed factory overhead costs are unavoidable.Assuming no other use of their facilities, the highest price that Fird Company should be willing to pay for the part is _____.
A)$41
B)$35
C)$45
D)$51

Question

Quizplus · Accepted Answer

The highest price Fird Company should be willing to pay for the part is the sum of the direct materials, direct labor, and variable factory overhead costs, which are $20 + $15 + $16 = $51. Fixed factory overhead costs are sunk costs and should not be considered in the decision to buy the part since they are unavoidable and will be incurred regardless of the decision.

Fird Company Manufactures a Part for Its Production Cycle The Fixed Factory Overhead Costs Are Unavoidable