Assume that if Sunland Water accepts Clifton’s offer, the company can use the freed-up manufacturing facilities to manufacture a new line of growing lights. The company estimates it can sell 86,490 of the new lights each year at a price of $11. Variable costs of the lights are expected to be $8 per unit. The timer unit supervisory and clerical staff would be transferred to this new product line. Calculate the total relevant cost to make the timer units and the net cost if they accept Clifton's offer.
Assume that if Sunland Water accepts Clifton’s offer, the company can use the freed-up manufacturing facilities to manufacture a new line of growing lights. The company estimates it can sell 86,490 of the new lights each year at a price of $11. Variable costs of the lights are expected to be $8 per unit. The timer unit supervisory and clerical staff would be transferred to this new product line. Calculate the total relevant cost to make the timer units and the net cost if they accept Clifton's offer.
Relevant cost appears to be a management accounting term that alludes to avoidable expenses that exist only when specific company activities are taken. The concept of relevant cost is used to eliminate irrelevant information that might hinder decision-making. For example, relevant cost is used to determine if a business unit ought to be sold or maintained.
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