Tastykakes makes various cookies and cupcakes. The cost of each batch of cupcakes and cookies is as follows: An outside supplier has offered to make the cupcakes and cookies for $30 per batch. If Tastykakes accepts the offer to outsource the production of the cupcakes and cookies, it will not be able to avoid the $14 of fixed overhead. How much will Tastykakes save if it accepts the offer?
A) $15 per batch
B) $12 per batch
C) $26 per batch
D) $ 1 per batch

Question

Tastykakes makes various cookies and cupcakes. The cost of each batch of cupcakes and cookies is as follows:  An outside supplier has offered to make the cupcakes and cookies for $30 per batch. If Tastykakes accepts the offer to outsource the production of the cupcakes and cookies, it will not be able to avoid the $14 of fixed overhead. How much will Tastykakes save if it accepts the offer?
A) $15 per batch 
B) $12 per batch 
C) $26 per batch 
D) $ 1 per batch

Quizplus · Accepted Answer

(Direct Materials + Direct Labor + Variable Overhead + Fixed Overhead) = $18 + $13 + $11 + $14 = Current cost to make, $56; Unavoidable Fixed Overhead + Purchase Price (outsource) = Cost to Outsource; $14 + $30 = $44; Current cost to make, $56 - Cost to Outsource, $44 = $12 saved by Accepting offer to purchase (outsource)

Tastykakes Makes Various Cookies and Cupcakes