Peters, Inc.produces chocolate chip cookies.Costs for producing one batch appear below: $$\begin{array} { l r }
\text { Direct materials } & \$ 8.00 \
\text { Direct labour } & 3.00 \
\text { Variable overhead } & 1.00 \
\text { Fixed overhead } & 4.00
\end{array}$$ An outside supplier has offered to produce the cookies for $14 per batch.If Peters decides to buy instead of make the cookies, what is the maximum price it would pay?

Question

Peters, Inc.produces chocolate chip cookies.Costs for producing one batch appear below: $$\begin{array} { l r } 
\text { Direct materials } & \$ 8.00 \
\text { Direct labour } & 3.00 \
\text { Variable overhead } & 1.00 \
\text { Fixed overhead } & 4.00
\end{array}$$ An outside supplier has offered to produce the cookies for $14 per batch.If Peters decides to buy instead of make the cookies, what is the maximum price it would pay?

Quizplus · Accepted Answer

The maximum price Peters would pay is the sum of the variable costs (Direct materials, Direct labour, and Variable overhead), which is $12.00. Fixed overhead is not considered as it will be incurred regardless of the decision.

Peters, Inc An Outside Supplier Has Offered to Produce the Cookies for Below