Reagan Company manufactures a part for its production cycle. The costs per unit for 10,000 units of this part are as follows: $\begin{array}{ll}
\text { Direct materials } & \$ 20 \
\text { Direct labor } & 15 \
\text { Variable factory overhead } & 16 \
\text { Fixed factory overhead } & \underline{10} \
\text { Total costs } & \$ 61
\end{array}$ The fixed factory overhead costs are unavoidable. Assuming no other use of their facilities, the highest price that Reagan Company should be willing to pay for the part is:
A) $35
B) $45
C) $51
D) $41

Question

Quizplus · Accepted Answer

The highest price Reagan Company should be willing to pay is the total of the avoidable costs, which are direct materials, direct labor, and variable factory overhead, totaling $51. Fixed factory overhead is unavoidable and should not be considered in the decision.

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