Vista Industries manufactures 75,000 digital cameras each year.Vista has been producing the lenses internally.However, late last year the company received an offer to produce the 150,000 lenses the company uses each year for a total contract price of $380,000.When Vista manufactures the lenses internally, direct materials cost $1.05 per lens, direct labor is $0.65 per lens, and variable overhead is $0.30 per lens.Vista's total overhead is $110,000.If the lens were purchased, $28,000 of fixed overhead could be avoided.What is the total relevant cost to produce the lenses internally?
A)$410,000
B)$328,000
C)$382,000
D)$380,000

Question

Quizplus · Accepted Answer

The total relevant cost to produce the lenses internally includes direct materials, direct labor, variable overhead, and any avoidable fixed overhead. Direct materials cost = 150,000 lenses * $1.05 = $157,500. Direct labor cost = 150,000 lenses * $0.65 = $97,500. Variable overhead = 150,000 lenses * $0.30 = $45,000. Avoidable fixed overhead = $28,000. Total relevant cost = $157,500 + $97,500 + $45,000 + $28,000 = $328,000.

Vista Industries Manufactures 75,000 Digital Cameras Each Year