Daly Company produces a part that is used in the manufacture of one of its products.The costs associated with the production of 5,000 units of this part are as follows: $\begin{array}{lr}
\text { Direct materials } & \$ 108,000 \
\text { Direct labor } & 156,000 \
\text { Variable factory overhead } & 72,000 \
\text { Fixed factory overhead } & 168,000 \
\text { Total costs } & \$ 504,000
\end{array}$ Of the fixed factory overhead costs, $72,000 is avoidable.Assuming no other use of their facilities, the highest price that Daly Company should be willing to pay for 5,000 units of the part is _____.
A)$504,000
B)$336,000
C)$408,000
D)$288,000

Question

Quizplus · Accepted Answer

The highest price Daly Company should be willing to pay is the total variable costs plus avoidable fixed costs, which equals $108,000 (Direct materials) + $156,000 (Direct labor) + $72,000 (Variable factory overhead) + $72,000 (Avoidable fixed factory overhead) = $408,000.

Daly Company Produces a Part That Is Used in the Manufacture