Reagan Company Manufactures a Part for Its Production Cycle The Fixed Factory Overhead Costs Are Unavoidable

question 49

Multiple Choice

Reagan Company manufactures a part for its production cycle. The costs per unit for 10,000 units of this part are as follows: $\begin{array}{ll}\text { Direct materials } & \$ 20 \\\text { Direct labor } & 15 \\\text { Variable factory overhead } & 16 \\\text { Fixed factory overhead } & \underline{10} \\\text { Total costs } & \$ 61\end{array}$ The fixed factory overhead costs are unavoidable. Assuming no other use of their facilities, the highest price that Reagan Company should be willing to pay for the part is:

• A) $35
• B) $45
• C) $51
• D) $41

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Definitions:

Internal Control

The processes and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.

Cash

A company's money in the form of currency or in bank accounts that is immediately available for business use.

FOB Destination

A shipping term indicating that the seller bears the shipping costs and retains ownership of the goods until they are delivered to the buyer's location.

Revenue Recognition

The accounting principle dictating the specific conditions under which revenue is recognized or accounted for.