Question

Rundle Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,200 containers follows: Unit-level materials $ 6,000 Unit-level labor 6,400 Unit-level overhead 3,300 Product-level costs* 8,100 Allocated facility-level costs 27,500 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Rundle for $2.60 each. Required Calculate the total relevant cost. Should Rundle continue to make the containers? Rundle could lease the space it currently uses in the manufacturing process. If leasing would produce $12,300 per month, calculate the total avoidable costs. Should Rundle continue to make the containers?

Answer 1

Answer:

1.Total avoidable cost =$18,400

2.Purchasing price = $23,920

3.Total avoidable cost = $30,700

4. No.

Explanation:

As per the data given in the question,

(1).

Total avoidable cost:

Unit-level materials = $6,000

Unit-level labor = $6,400

Unit-level overhead = $3,300

Product-level cost = $8,100/3 = $2,700

Total avoidable cost = $6,000 + $6,400+ $3,300 + $2,700 = $18,400

(2).

Since cost of buying is more than production therefore Rundle Electronics should continue production

Purchase price = 9,200 × $2.6

=$23,920

(3)

if leasing produce $12,300 per month, than

Total avoidable cost = $12,300 + $18,400

= $30,700

(4)

No, It is better to purchase rather than production because purchasing price is less than production amount.