Crigui Music produces 60,000 CDs on which to record music. The CDs have the following costs:. $$\begin{array} { l r }
\text { Direct Materials } & \$ 13,000 \
\text { Direct Labor } & 15,000 \
\text { Variable Overhead } & 3,000 \
\text { Fixed Overhead } & 7,000
\end{array}$$ None of Crigui's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $4,000 if the CDs were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the CDs, what is the maximum external price that Crigui would be willing to accept to acquire the 60,000 units externally?
A) $38,000
B) $34,000
C) $35,000
D) $42,000

Question

Crigui Music produces 60,000 CDs on which to record music. The CDs have the following costs:. $$\begin{array} { l r } 
\text { Direct Materials } & \$ 13,000 \
\text { Direct Labor } & 15,000 \
\text { Variable Overhead } & 3,000 \
\text { Fixed Overhead } & 7,000
\end{array}$$ None of Crigui's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $4,000 if the CDs were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the CDs, what is the maximum external price that Crigui would be willing to accept to acquire the 60,000 units externally?
A) $38,000
B) $34,000
C) $35,000
D) $42,000

Quizplus · Accepted Answer

The maximum external price Crigui would be willing to accept is the total variable cost of producing the CDs internally ($13,000 + $15,000 + $3,000 = $31,000) plus the $4,000 profit contribution from the alternative product, totaling $35,000.

Crigui Music Produces 60,000 CDs on Which to Record Music