The Reno Company manufactures part no. 498 for use in its production cycle. The cost per unit for 20,000 units of part no. 498 is as follows: Direct materials Direct labor Variable overhead $6 30 12 Fixed overhead applied 16 $64 The Tray Company has offered to sell 20,000 units of part no. 498 to Reno for $60 per unit. Reno will make the decision to buy the part from Tray if there is a savings of $25,000 for Reno. If Reno accepts Tray's offer, $9 per unit of the fixed overhead applied would be totally eliminated. Furthermore, Reno has determined that the released facilities could be used to save relevant costs in the manufacture of part no. 575. In order to have a savings of $25,000, the amount of relevant costs that would be saved by using the released facilities in the manufacture of part no. 575 would have to be: (a) $80,000 (b) $85,000 (c) $125,000 (d) $140,000
The Reno Company manufactures part no. 498 for use in its production cycle. The cost per unit for 20,000 units of part no. 498 is as follows: Direct materials Direct labor Variable overhead $6 30 12 Fixed overhead applied 16 $64 The Tray Company has offered to sell 20,000 units of part no. 498 to Reno for $60 per unit. Reno will make the decision to buy the part from Tray if there is a savings of $25,000 for Reno. If Reno accepts Tray's offer, $9 per unit of the fixed overhead applied would be totally eliminated. Furthermore, Reno has determined that the released facilities could be used to save relevant costs in the manufacture of part no. 575. In order to have a savings of $25,000, the amount of relevant costs that would be saved by using the released facilities in the manufacture of part no. 575 would have to be: (a) $80,000 (b) $85,000 (c) $125,000 (d) $140,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The Reno Company manufactures part no. 498 for use in its production cycle. The
cost per unit for 20,000 units of part no. 498 is as follows:
Direct materials
Direct labor
Variable overhead
$6
30
12
Fixed overhead applied 16
$64
The Tray Company has offered to sell 20,000 units of part no. 498 to Reno for $60
per unit. Reno will make the decision to buy the part from Tray if there is a
savings of $25,000 for Reno. If Reno accepts Tray's offer, $9 per unit of the fixed
overhead applied would be totally eliminated. Furthermore, Reno has determined
that the released facilities could be used to save relevant costs in the manufacture
of part no. 575. In order to have a savings of $25,000, the amount of relevant
costs that would be saved by using the released facilities in the manufacture of
part no. 575 would have to be:
(a) $80,000
(b) $85,000
(c) $125,000
(d) $140,000
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