2C2D REFRIGERATOR COMPANY MANUFACTURES ICE-MAKERS FOR INSTALLATION IN...

225.

CSO: 2C2a

LOS: 2C2d

Refrigerator Company manufactures ice-makers for installation in refrigerators. The

costs per unit, for 20,000 units of ice-makers, are as follows.

Direct materials

$ 7

Direct labor

12

Variable overhead

5

Fixed overhead

10

Total costs

$34

Cool Compartments Inc. has offered to sell 20,000 ice-makers to Refrigerator Company

for $28 per unit. If Refrigerator accepts Cool Compartments’ offer the plant would be

idled and fixed overhead amounting to $6 per unit could be eliminated. The total relevant

costs associated with the manufacture of ice-makers amount to

a.

$480,000.

b.

$560,000.

c.

$600,000.

d.

$680,000.