2C2D REFRIGERATOR COMPANY MANUFACTURES ICE-MAKERS FOR INSTALLATION IN...
244.
CSO: 2C2d
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 facilities used to
manufacture ice-makers could be used to produce water filtration units. Revenues from
the sale of water filtration units are estimated at $80,000, with variable costs amounting
to 60% of sales. In addition, $6 per unit of the fixed overhead associated with the
manufacture of ice-makers could be eliminated.
For Refrigerator Company to determine the most appropriate action to take in this
situation, the total relevant costs of make vs. buy, respectively, are
a.
$600,000 vs. $560,000.
b.
$648,000 vs. $528,000.
c.
$600,000 vs. $528,000.
d.
$680,000 vs. $440,000.