Quiech inc. manufactures machine parts for aircraft engines. The CEO, Chucky Val
ID: 2485258 • Letter: Q
Question
Quiech inc. manufactures machine parts for aircraft engines. The CEO, Chucky Valters, was considering an offer from a subcontractor that would provide 2400 units of product PQ 107 for valters for a price of $150,000, If Quirch does not purchase these parts from the subcontractor it must produce them in-house with the following unit costs: In addition to the above costs, if Quirch produces part PQ 107. It would also have a retooling and design cost of $9,800. The relevant costs of producing 2.400 units of product PQ 107 are: $149,000. $129.800. $150,000. $164,200. $148.300. Which of the following statements regarding "opportunity costs" is true? These costs are recorded routinely by most modem cost accounting systems. These costs relate to the benefit lost or foregone when a chosen option (course of action) the benefits of an alternative option from being realized. These costs are generally deductible for federal income tax purposes in the U.S. In terms of most short-run decisions, they are irrelevantExplanation / Answer
4 Quirch Inc Details Units of PQ 107 to be produced 2,400 Relevant costs Per unit $ Total Amt $ Direct Materials 31 74,400 Direct Labor 19 45,600 Variable OH 8 19,200 Retooling & Design cost 9,800 Total Relevant cost 149,000 So Option A is correct. 5 Opportunity Cost -Correct stratement is B. These costs relate to the benefit lost or foregone when a chosen option precludes the benefits of an alternative option from being realized. Opprotunity costs are not generally routinely recorded in cost accounting system and they are not tax deductible or not irrelevant for most short run decisisons. So the other options are not correct.
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