Lafferty Corporation is a specialty component manufacturer with idle capacity. Management would like to use its unused capacity to generate additional profits. A potential customer has offered to buy 6,200 units of component Rocket. Each unit of Rocket requires 8 units of material CES4 and 6 units of material XES7. Data concerning these two materials follow:
$$\begin{array} { l c c c c }
& \text { Units in } & \text { Original Cost } & \text { Current Market Price Per } & \begin{array} { c }
\text { Disposal } \
\text { Value Per }
\end{array} \
\text { Material } & \text { Stock } & \text { Per Unit } & \text { Unit } & \text { Unit } \
\text { CES4 } &3 2 , 4 2 0 & \$ 3 . 8 0& \$ 3 . 3 5 & \$ 3 . 1 0 \
\text { XES7 } & 3 1 , 0 6 0 & \$ 2 . 3 0 & \$ 9.60 & \$ 3 . 3 5
\end{array}$$
Material CES4 is in use in many of the company's products and is routinely replenished. Material XES7 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up.
What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product Rocket? (CIMA adapted)
A) $528,551
B) $523,280
C) $476,350
D) $484,455

Question

Lafferty Corporation is a specialty component manufacturer with idle capacity. Management would like to use its unused capacity to generate additional profits. A potential customer has offered to buy 6,200 units of component Rocket. Each unit of Rocket requires 8 units of material CES4 and 6 units of material XES7. Data concerning these two materials follow:
$$\begin{array} { l c c c c } 
& \text { Units in } & \text { Original Cost } & \text { Current Market Price Per } & \begin{array} { c } 
\text { Disposal } \
\text { Value Per }
\end{array} \
\text { Material } & \text { Stock } & \text { Per Unit } & \text { Unit } & \text { Unit } \
\text { CES4 } &3 2 , 4 2 0  & \$ 3 . 8 0& \$ 3 . 3 5  & \$ 3 . 1 0  \
\text { XES7 } &  3 1 , 0 6 0  & \$ 2 . 3 0  &  \$ 9.60 &  \$ 3 . 3 5 
\end{array}$$
Material CES4 is in use in many of the company's products and is routinely replenished. Material XES7 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up.
What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product Rocket? (CIMA adapted)
A) $528,551
B) $523,280
C) $476,350
D) $484,455

Quizplus · Accepted Answer

The Answer of Lafferty Corporation is a specialty component manufacturer with idle capacity. Management would like to use its unused capacity to generate additional profits. A potential customer has offered to buy 6,200 units of component Rocket. Each unit of Rocket requires 8 units of material CES4 and 6 units of material XES7. Data concerning these two materials follow:
$$\begin{array} { l c c c c } 
& \text { Units in } & \text { Original Cost } & \text { Current Market Price Per } & \begin{array} { c } 
\text { Disposal } \
\text { Value Per }
\end{array} \
\text { Material } & \text { Stock } & \text { Per Unit } & \text { Unit } & \text { Unit } \
\text { CES4 } &3 2 , 4 2 0  & \$ 3 . 8 0& \$ 3 . 3 5  & \$ 3 . 1 0  \
\text { XES7 } &  3 1 , 0 6 0  & \$ 2 . 3 0  &  \$ 9.60 &  \$ 3 . 3 5 
\end{array}$$
Material CES4 is in use in many of the company's products and is routinely replenished. Material XES7 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up.
What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product Rocket? (CIMA adapted)
A) $528,551
B) $523,280
C) $476,350
D) $484,455

Lafferty Corporation Is a Specialty Component Manufacturer with Idle Capacity