Answer :
To determine the relevant unit cost of purchasing the wicket from an outside vendor, we need to consider the costs that can be avoided if Marigold Corp., Inc. decides to stop manufacturing the wicket and buy it instead. Let's break down the cost components:
1. Variable Costs:
- Direct materials and direct labor = \$27 per unit
- Variable overhead = \$4 per unit
2. Fixed Overhead:
- Total fixed overhead = \$8 per unit
- Percentage of fixed overhead that is avoidable = 75%
Step-by-step solution:
1. Calculate the avoidable portion of fixed overhead:
[tex]\[ \text{Avoidable fixed overhead} = \text{Total fixed overhead} \times \text{Percentage avoidable} \][/tex]
[tex]\[ \text{Avoidable fixed overhead} = 8 \times 0.75 = 6 \, \text{per unit} \][/tex]
2. Add together all avoidable costs:
[tex]\[ \text{Direct materials and direct labor} + \text{Variable overhead} + \text{Avoidable fixed overhead} \][/tex]
[tex]\[ \text{Avoidable cost} = 27 + 4 + 6 = 37 \, \text{per unit} \][/tex]
3. Compare the avoidable cost per unit with the vendor's cost:
- Vendor cost per unit = \$32
- Avoidable cost per unit = \$37
Since the cost of purchasing from the vendor (\[tex]$32) is less than the avoidable cost (\$[/tex]37), the relevant unit cost of purchasing the wicket would be the vendor's price, which is:
[tex]\[ \boxed{32} \][/tex]
Thus, the relevant unit cost of purchasing the wicket is \$32 per unit.
1. Variable Costs:
- Direct materials and direct labor = \$27 per unit
- Variable overhead = \$4 per unit
2. Fixed Overhead:
- Total fixed overhead = \$8 per unit
- Percentage of fixed overhead that is avoidable = 75%
Step-by-step solution:
1. Calculate the avoidable portion of fixed overhead:
[tex]\[ \text{Avoidable fixed overhead} = \text{Total fixed overhead} \times \text{Percentage avoidable} \][/tex]
[tex]\[ \text{Avoidable fixed overhead} = 8 \times 0.75 = 6 \, \text{per unit} \][/tex]
2. Add together all avoidable costs:
[tex]\[ \text{Direct materials and direct labor} + \text{Variable overhead} + \text{Avoidable fixed overhead} \][/tex]
[tex]\[ \text{Avoidable cost} = 27 + 4 + 6 = 37 \, \text{per unit} \][/tex]
3. Compare the avoidable cost per unit with the vendor's cost:
- Vendor cost per unit = \$32
- Avoidable cost per unit = \$37
Since the cost of purchasing from the vendor (\[tex]$32) is less than the avoidable cost (\$[/tex]37), the relevant unit cost of purchasing the wicket would be the vendor's price, which is:
[tex]\[ \boxed{32} \][/tex]
Thus, the relevant unit cost of purchasing the wicket is \$32 per unit.
