Taylor Manufactures 12,000 Units of a Part Used in Its

question 2

Multiple Choice

Taylor manufactures 12,000 units of a part used in its production to manufacture guitars. The annual production activities related to this part are as follows: Direct materials, $24,000
Direct labor, $60,000
Variable overhead, $54,000
Fixed overhead, $84,000
Best Guitars, Inc., has offered to sell 12,000 units of the same part to Taylor for $22 per unit. If Taylor were to accept the offer, some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000. Moreover, $4 per unit of the fixed overhead applied to the part would be totally eliminated.
In the decision to make or buy the part, what is the relevant fixed overhead?

• A) $30,000
• B) $54,000
• C) $84,000
• D) $48,000

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