Richardson Motors uses ten units of Part Number T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is presented below.
D mat $2,000
Material handling (20% of D Mat) 400
D Lab 16,000
Man. OH (150% of D lab) 24,000
Total Manu. OH $42,400
Material handling, which is not included in manufacturing overhead, represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. Richardson's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Simpson Castings, one of Richardson's reliable vendors, has offered to supply T305 at a unit price of $30,000.
Assume the rental opportunity does not exist and Richardson Motors could use the idle capacity to manufacture another product that would contribute $104,000 per month. If Richardson chooses to manufacture the ten T305 units in order to maintain quality control, Richardson's opportunity cost is
A. $(40,000).
B. $8,000.
C. $36,000.
D. $(96,000).
D mat $2,000
Material handling (20% of D Mat) 400
D Lab 16,000
Man. OH (150% of D lab) 24,000
Total Manu. OH $42,400
Material handling, which is not included in manufacturing overhead, represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. Richardson's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Simpson Castings, one of Richardson's reliable vendors, has offered to supply T305 at a unit price of $30,000.
Assume the rental opportunity does not exist and Richardson Motors could use the idle capacity to manufacture another product that would contribute $104,000 per month. If Richardson chooses to manufacture the ten T305 units in order to maintain quality control, Richardson's opportunity cost is
A. $(40,000).
B. $8,000.
C. $36,000.
D. $(96,000).
