Flamingo Music produces 60000 CDs on which to record music. The CDs have the following costs: $$\begin{array} { l r }
\text { Direct Materials } & \$ 11,000 \
\text { Direct Labor } & 15,000 \
\text { Variable Overhead } & 3,000 \
\text { Fixed Overhead } & 7,000
\end{array}$$ None of Flamingo's fixed overhead costs can be reduced but another product could be made that would increase profit contribution by $4000 if the CDs were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the CDs what is the maximum external price that Flamingo would be willing to accept to acquire the 60000 units externally?

Question

Flamingo Music produces 60000 CDs on which to record music. The CDs have the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 11,000 \
\text { Direct Labor } & 15,000 \
\text { Variable Overhead } & 3,000 \
\text { Fixed Overhead } & 7,000
\end{array}$$ None of Flamingo's fixed overhead costs can be reduced but another product could be made that would increase profit contribution by $4000 if the CDs were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the CDs what is the maximum external price that Flamingo would be willing to accept to acquire the 60000 units externally?

Quizplus · Accepted Answer

The Answer of Flamingo Music produces 60000 CDs on which to record music. The CDs have the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 11,000 \
\text { Direct Labor } & 15,000 \
\text { Variable Overhead } & 3,000 \
\text { Fixed Overhead } & 7,000
\end{array}$$ None of Flamingo's fixed overhead costs can be reduced but another product could be made that would increase profit contribution by $4000 if the CDs were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the CDs what is the maximum external price that Flamingo would be willing to accept to acquire the 60000 units externally?

Flamingo Music Produces 60000 CDs on Which to Record Music