Diamond Brands manufactures rice, wheat, and oat cereals. Sanders Company has approached Diamond Brands with a proposal to sell the company the rice cereals at a price of $22,000 for 20,000 pounds. The following costs are associated with production of 20,000 pounds of rice cereal: Direct material $13,000 Direct labor 5,000 Manufacturing overhead 7,000 Total
Diamond Brands manufactures rice, wheat, and oat cereals. Sanders Company has approached Diamond Brands with a proposal to sell the company the rice cereals at a price of $22,000 for 20,000 pounds. The following costs are associated with production of 20,000 pounds of rice cereal:
Direct material $13,000
Direct labor 5,000
Manufacturing
Total $25,000
The manufacturing overhead consists of $5,000 of variable costs with the balance being allocated to fixed costs. What is the amount of avoidable costs if Diamond Brands buys rather than makes the rice cereal?
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$25,000 |
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$23,000 |
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$21,000 |
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$20,000 |
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$22,000 |
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