Question

Nakatomi Corporation produces 10,000 units of Product A at a cost of $20 per unit. A detailed breakdown of the cost is below. Per Unit Variable costs $ 12 Allocated manufacturing overhead costs 3 Allocated general administrative costs 5 $ 20 Outside supplier's offer $ 17 What are the total relevant cost of producing the units internally

Answer 1

Answer: $120,000

Explanation:

Fixed costs are not considered to be relevant costs because they will be incurred by the business regardless. Variable costs are therefore the only relevant costs and in this case the variable costs are:

= Number of units * variable costs per unit

= 10,000 units * 12

= $120,000