Moyer Corporation is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 2,300 units of component TIB. Each unit of TIB requires 9 units of material F58 and 7 units of material D66. Data concerning these two materials follow: Material F58 is in use in many of the company's products and is routinely replenished. Material D66 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 TIB?
A)$189,290
B)$174,215
C)$168,533
D)$200,905

Question

Moyer Corporation is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 2,300 units of component TIB. Each unit of TIB requires 9 units of material F58 and 7 units of material D66. Data concerning these two materials follow:  Material F58 is in use in many of the company's products and is routinely replenished. Material D66 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 TIB?
A)$189,290 
B)$174,215 
C)$168,533 
D)$200,905

Quizplus · Accepted Answer

The relevant cost of materials for this order would include only the cost of acquiring additional units of material F58 since it is routinely replenished. The cost of using material D66 is irrelevant since the company will not replenish it once it is used up.

Total units of material F58 required for the order: 9 x 2,300 = 20,700 units
Total cost of material F58: 20,700 x $7.95 = $164,265

Therefore, the total relevant cost of materials for this order is $164,265. Adding any additional costs (such as labor or overhead) to this amount would give the minimum acceptable price for the order.

The closest option to this amount is option B, $174,215.

Moyer Corporation Is a Specialty Component Manufacturer with Idle Capacity