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# Nook Company currently produces a key part at a total cost of \$180-000.docx

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Chapter 7 questions
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# Nook Company currently produces a key part at a total cost of \$180-000.docx

Nook Company currently produces a key part at a total cost of \$180,000. Annual variable costs are \$163,000. Of the annual fixed costs, \$18,000 relate specifically to this part. The remaining fixed costs are unavoidable.
Another manufacturer has offered to supply the part annually for \$175,000. The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of \$45,500 per year. Alternatively, the facilities could be rented out at \$32,000 per year. Given all of these alternatives, what is Nook Company\'s lowest net relevant cost for the parts?
A. \$163,000
B. \$125,000
C. \$129,500
D. \$181,000
Solution
Solution:
A relevant cost is a cost that differs between alternatives in a decision. Not all fixed costs are sunk
.

Nook Company currently produces a key part at a total cost of \$180,000. Annual variable costs are \$163,000. Of the annual fixed costs, \$18,000 relate specifically to this part. The remaining fixed costs are unavoidable.
Another manufacturer has offered to supply the part annually for \$175,000. The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of \$45,500 per year. Alternatively, the facilities could be rented out at \$32,000 per year. Given all of these alternatives, what is Nook Company\'s lowest net relevant cost for the parts?
A. \$163,000
B. \$125,000
C. \$129,500
D. \$181,000
Solution
Solution:
A relevant cost is a cost that differs between alternatives in a decision. Not all fixed costs are sunk
.

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### Nook Company currently produces a key part at a total cost of \$180-000.docx

1. 1. Nook Company currently produces a key part at a total cost of \$180,000. Annual variable costs are \$163,000. Of the annual fixed costs, \$18,000 relate specifically to this part. The remaining fixed costs are unavoidable. Another manufacturer has offered to supply the part annually for \$175,000. The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of \$45,500 per year. Alternatively, the facilities could be rented out at \$32,000 per year. Given all of these alternatives, what is Nook Company's lowest net relevant cost for the parts? A. \$163,000 B. \$125,000 C. \$129,500 D. \$181,000 Solution The correct answer is C Solution: A relevant cost is a cost that differs between alternatives in a decision. Not all fixed costs are sunk