Use the following information for questions
Ortiz Co. produces 5,000 units of part A12E. The following costs were incurred for that level of production: $$\begin{array} { l r }
\text { Direct materials } & \$ 55,000 \
\text { Direct labor } & 160,000 \
\text { Variable overhead } & 75,000 \
\text { Fixed overhead } & 175,000
\end{array}$$ If Ortiz buys the part from an outside supplier, $40,000 of the fixed overhead is avoidable.
-What is the relevant cost per unit of part A12E?
A) $58
B) $85
C) $93
D) $66

Question

Use the following information for questions 
Ortiz Co. produces 5,000 units of part A12E. The following costs were incurred for that level of production: $$\begin{array} { l r } 
\text { Direct materials } & \$ 55,000 \
\text { Direct labor } & 160,000 \
\text { Variable overhead } & 75,000 \
\text { Fixed overhead } & 175,000
\end{array}$$ If Ortiz buys the part from an outside supplier, $40,000 of the fixed overhead is avoidable.
-What is the relevant cost per unit of part A12E?
A) $58
B) $85
C) $93
D) $66

Quizplus · Accepted Answer

The relevant cost per unit includes direct materials, direct labor, variable overhead, and the avoidable portion of fixed overhead. Total relevant costs are $55,000 + $160,000 + $75,000 + $40,000 = $330,000. Dividing by 5,000 units gives $66 per unit.

Use the Following Information for Questions Ortiz Co If Ortiz Buys the Part from an Outside Supplier, $40,000

Use the Following Information for Questions
Ortiz Co If Ortiz Buys the Part from an Outside Supplier, $40,000