Rublum Micro Devices currently manufactures a subassembly for its main product. The costs per...

Question:

Rublum Micro Devices currently manufactures a subassembly for its main product. The costs per unit are as follows:

Direct materials : $47

Direct labor: 44

Variable overhead: 42

Fixed overhead: 31

Total: $164

Crayola Technologies Inc., has contacted Rublum with an offer to sell 9,000 of the subassemblies for $136 each. Rublum will eliminate $89,000 of fixed overhead if it accepts the proposal. What are the relevant costs for Rublum?

a. $908,000

b. $1,585,000

c. $791,000

d. $1,286,000

Relevant Cost:

Relevant cost relates to the cost, which is associated with a particular decision taken by the management that may vary in the future as a result of the decision taken. It helps in eliminating the extraneous information related to the process of decision making.

Answer and Explanation:

Computing the relevant cost:
Particulars Amount ($)
Direct material 47
Direct labor 44
Variable Overhead 42
Total variable cost per unit 133
Total variable cost (9,000 * 133) 11,97,000
Add: fixed overhead 89000
Total relevant cost 12,86,000

(Correct answer: d)


Learn more about this topic:

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Relevant Costs in Eliminating a Product or Segment

from Accounting 301: Applied Managerial Accounting

Chapter 9 / Lesson 12
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