Answer the following question(s)using the information below.Schmidt Corporation produces a part that is used in the manufacture of one of its products.The costs associated with the production of 10,000 units of this part are as follows:
Of the fixed factory overhead costs, $30,000 is avoidable.
-Assuming no other use of their facilities, the highest price that Schmidt should be willing to pay for 10,000 units of the part is
A)$210,000.
B)$170,000.
C)$110,000.
D)$180,000.
E)$140,000.

Question

Answer the following question(s)using the information below.Schmidt Corporation produces a part that is used in the manufacture of one of its products.The costs associated with the production of 10,000 units of this part are as follows:
  Of the fixed factory overhead costs, $30,000 is avoidable.
-Assuming no other use of their facilities, the highest price that Schmidt should be willing to pay for 10,000 units of the part is
A)$210,000. 
B)$170,000. 
C)$110,000. 
D)$180,000. 
E)$140,000.

Quizplus · Accepted Answer

To determine the highest price that Schmidt should be willing to pay for 10,000 units of the part, we need to calculate the total relevant costs. Relevant costs include variable costs and avoidable fixed costs.

Variable costs per unit = Direct materials + Direct labor + Variable overhead
= $5 + $8 + $9
= $22

Total variable costs = Variable costs per unit × Number of units
= $22 × 10,000
= $220,000

Total relevant costs = Total variable costs + Avoidable fixed costs
= $220,000 + $30,000
= $250,000

Therefore, the highest price that Schmidt should be willing to pay for 10,000 units of the part is $250,000. However, since the question asks for the highest price Schmidt should be willing to pay assuming no other use of their facilities, we need to subtract the avoidable fixed costs from the total relevant costs.

Highest price = Total relevant costs - Avoidable fixed costs
= $250,000 - $30,000
= $220,000

So, the highest price that Schmidt should be willing to pay for 10,000 units of the part is $220,000, which is option B.

Answer the Following Question(s)using the Information Below