Managerial Accounting Question

[faisal_ali]

can any one solve this?

A company manufactures one product. Variable costs are $600,000. Fixed Costs are $300,000. If it bought the product from another supplier, it could use existing machinery to make a contribution of $400,000. Fixed Costs would not change.

What is the maximum price it should pay to obtain the product from another supplier.

A. $600,000
B. $700,000
C. $900,000
d. $1,000,000

[Adil.Iqbal]

One should only consider relevant cost while making decisions of make or buy.


The option of $600.000/- is the correct answer.


Best Regards,


@d!l

[faisal_ali]

Thats i thought but this is not a right answer dear as per book i have..............


<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Adil.Iqbal</i>
<br />One should only consider relevant cost while making decisions of make or buy.


The option of $600.000/- is the correct answer.


Best Regards,


@d!l



<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

[wasim akram]

1000,000 Maximum price to pay.
+300,000 Fixed Cost
-400,000 Contribution of machinery if purchased out side
=900,000 Manufacturing cost ( Fixed + Variable)

So can not go beyond 1,000,000
In my opinion option D is ok

[Adil.Iqbal]

Fixed cost is not non relevant cost (period cost) which must not be consider but you may be right since I take this question as Decision Making Qs as you've mention in your question the maximum price to pay.....

[faisal_ali]

Thanks ......