Question

The Fine Point Company currently produces all of the components for its one product, an electric pencil sharpener. The unit cost of manufacturing the motor for this pencil sharpener is:

Direct materials $1.75
Direct labor $1.65
Variable overhead $0.75
Fixed overhead $0.60

The company is considering the possibility of buying this motor from a subcontractor and has been quoted a price of $3.60 per unit. The relevant cost of manufacturing the motor to be considered in reaching the decision is:

Answer 1

$4.15.

Step-by-step explanation:

The relevant to use in reaching the decision can be computed as follows:

Relevant cost = Direct materials + Direct labor + Variable overhead = $1.75 + $1.65 + $0.75 = $4.15.

Therefore, the relevant cost of manufacturing the motor to be considered in reaching the decision is $4.15.