Question

Marigold Corp.can produce 100 units of a component part with the following costs:
Direct Materials $21000
Direct Labor 5500
Variable Overhead 19000
Fixed Overhead 11000
If Marigold Corp. can purchase the units externally for $50000, by what amount will its total costs change?

A. An increase of S4500
B. An increase of $50000
C. An increase of $15S00
D. A decrease of $11000

Answer 1

Answer:

A. An increase of $4,500

Explanation:

For computing the total cost change, first we have to determine the total cost which is shown below

= Direct Materials cost + Direct Labor costs + variable overhead costs

= $21,000 + $5,500 + $19,000

= $45,500

And, the outside purchase is $50,000

So, the total cost change would be

= $50,000 - $45,500

= $4,500 increase