Biology Forums - Study Force

W.T. Ginsburg Engine Company manufactures part ACT30107 used in several of its engine models. Monthly production costs for 1,090 units are as follows:

Direct materials$46,000
Direct labor10,500
Variable overhead costs32,500
Fixed overhead costs22,000
Total costs$111,000

It is estimated that 6% of the fixed overhead costs assigned to  ACT30107 will no longer be incurred if the company purchases ACT30107 from the outside supplier. W.T Ginsburg Engine Company has the option of purchasing the part from an outside supplier at $94.75 per unit.

If the company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total ________.
A) $90,320
B) $89,000
C) $111,000
D) $112,320

 A
Explanation:  Monthly avoidable costs = $46,000 + $10,500 + $32,500 + ($22,000  6%) = $90,320