Peters, Inc.produces chocolate chip cookies.Costs for producing one batch appear below: $$\begin{array} { l l }
\text { Direct materials } & \$8.00 \
\text { Direct labour } & 3.00 \
\text { Variable overhead } & 1.00 \
\text { Fixed overhead } & 4.00
\end{array}$$ An outside supplier has offered to produce the cookies for $14 per batch.If Peters decides to buy instead of make the cookies, what is the maximum price it would pay?
A)$16.00
B)$12.00
C)$13.60
D)$14.40

Question

Peters, Inc.produces chocolate chip cookies.Costs for producing one batch appear below: $$\begin{array} { l l } 
\text { Direct materials } & \$8.00  \
\text { Direct labour } & 3.00 \
\text { Variable overhead } & 1.00 \
\text { Fixed overhead } & 4.00
\end{array}$$ An outside supplier has offered to produce the cookies for $14 per batch.If Peters decides to buy instead of make the cookies, what is the maximum price it would pay?
A)$16.00
B)$12.00
C)$13.60
D)$14.40

Quizplus · Accepted Answer

The maximum price Peters would pay is the sum of the avoidable costs: Direct materials ($8.00), Direct labour ($3.00), and Variable overhead ($1.00), totaling $12.00. Fixed overhead is not avoidable and thus not included.

Peters, Inc An Outside Supplier Has Offered to Produce the Cookies for Below