Callow Company has considerable excess manufacturing capacity. A special job order's cost sheet includes the following allocated manufacturing overhead costs: $\begin{array}{lr}
\text { Fixed costs } & \$ 42,000 \
\text { Variable costs } & 66,000
\end{array}$ The fixed costs include a normal $7,400 allocation for in-house design costs, although no in-house design will be done. Instead, the job will require the use of external designers costing $15,500. What is the total amount to be included in the calculation to determine the minimum acceptable price for the job?
A) $73,000
B) $81,500
C) $108,000
D) $116,100

Question

Quizplus · Accepted Answer

The total amount includes the variable costs of $66,000 and the external design costs of $15,500. The fixed costs excluding the in-house design costs ($42,000 - $7,400 = $34,600) are not relevant since the company has excess capacity and these costs will be incurred regardless of the job. Therefore, the relevant costs are $66,000 + $15,500 = $81,500.

Callow Company Has Considerable Excess Manufacturing Capacity Fixed costs $42,000 Variable costs 66,000\begin{array}{lr}\text { Fixed costs } & \$ 42,000 \\\text { Variable costs } & 66,000\end{array} Fixed costs Variable costs ​$42,00066,000​

Callow Company Has Considerable Excess Manufacturing Capacity $\begin{array}{lr}\text { Fixed costs } & \$ 42,000 \\\text { Variable costs } & 66,000\end{array}$