W.T. Ginsburg Engine Company manufactures part ACT30107 used in several of its engine models. Monthly production costs for 1,090 units are as follows:

It is estimated that 6% of the fixed overhead costs assigned to ACT30107 will no longer be incurred if the company purchases ACT30107 from the outside supplier. W.T Ginsburg Engine Company has the option of purchasing the part from an outside supplier at $94.75 per unit.
If the company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total ________.
A) $90,320
B) $89,000
C) $111,000
D) $112,320

Question

W.T. Ginsburg Engine Company manufactures part ACT30107 used in several of its engine models. Monthly production costs for 1,090 units are as follows:

It is estimated that 6% of the fixed overhead costs assigned to ACT30107 will no longer be incurred if the company purchases ACT30107 from the outside supplier. W.T Ginsburg Engine Company has the option of purchasing the part from an outside supplier at $94.75 per unit.
If the company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total ________.
A) $90,320 
B) $89,000 
C) $111,000 
D) $112,320

Quizplus · Accepted Answer

Monthly avoidable costs = $46,000 + $10,500 + $32,500 + ($22,000 × 6%) = $90,320

WT Ginsburg Engine Company Manufactures Part ACT30107 Used in Several