Kaiman Company Currently Produces a Key Part at a Total

question 48

Multiple Choice

Kaiman Company currently produces a key part at a total cost of $210,000.Annual variable costs are $170,000.Of the annual fixed costs,$10,000 relate specifically to this part.The remaining fixed costs are unavoidable.
Another manufacturer has offered to supply the part annually for $200,000.The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $30,000 per year.Alternatively,the facilities could be rented out at $60,000 per year.Given all of these alternatives,what is Kaiman Company's lowest net relevant cost for the parts?

• A) $130,000
• B) $140,000
• C) $170,000
• D) $180,000

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Definitions:

Revolving Credit

A credit agreement that allows a borrower to withdraw, repay, and redraw loans repeatedly up to a certain credit limit.

Magnuson-Moss Act

A federal law enacted to protect consumers from deceptive warranty practices, improving the enforceability of warranties on consumer products.

Injunctive Relief

A court order requiring a party to do or to refrain from doing specific acts.

Equal Credit Opportunity

A law that prohibits lenders from discriminating against applicants based on race, color, religion, national origin, sex, marital status, age, or because all or part of an applicant's income derives from any public assistance program.