Genent\'s Engine Company manufactures part TE456 used in several of its engine m

Question

Genent's Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1 comma 040 units are as follows: Direct materials $43,000 Direct labor 9,500 Variable overhead costs 31,500 Fixed overhead costs 18,000 Total costs $102,000 It is estimated that 7 % of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier. Genent's Engine Company has the option of purchasing the part from an outside supplier at $ 94.75 per unit.If Genent's Engine Company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total ________.

A.$ 102 comma 000

B.$ 103 comma 260

C.$ 84 comma 000

D.$ 85 comma 260

Explanation / Answer

Direct materials 43000 Direct labor 9500 Variable overhead costs 31500 Avoidable fixed costs 1260 =18000*7% Monthly avoidable costs 85260 Option D is correct

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