Coffee House Company produces a plastic coupler that is used for one of its prod
ID: 2445886 • Letter: C
Question
Coffee House Company produces a plastic coupler that is used for one of its products. The costs associated with the production of 10,000 plastic couplers are as follows:
Direct materials
$ 100,000
Direct labour
170,000
Variable factory overhead
300,000
Fixed factory overhead
250,000
$820,000
Of the fixed factory overhead costs, $35,000 is avoidable.
Required:
Part 1. There is no alternative use for the facilities, should Coffee House take advantage of an offer from an outside vendor who is willing to sell Coffee House Company 10,000 units of the plastic couplers for $64 per unit?
Part 2. Would your answer to Part (1) change if the facilities could be rented for $50,000 a year?
Direct materials
$ 100,000
Direct labour
170,000
Variable factory overhead
300,000
Fixed factory overhead
250,000
$820,000
Explanation / Answer
The Cost for producing plastic couplers are calculated as under
Direct Materials = $100,000
Direct Labour = $170,000
Variable Factory Overheads = $(300,000- $35,000)$35,000 avoidable = $265,000
Fixed Factory Overheads = $250,000
Total Cost = $100,000 + $ 170,000 + $265,000 + $ 250,000 = $ 785,000
:- $ 785,000 divided by 10,000 units then Cost comes at $ 78.5 per Unit
Answer Part1: it is clear that Coffee House should take advantage of an offer from an outside vendor who is willing to sell Coffee House Company 10,000 units of the plastic couplers for $64 per unit.
Answer Part2: If the facilities could be rented for $50,000 a year, there is no sales figure given. the sales figure is required to answer the part2 question.