Starla Corporation Is a Specialty Component Manufacturer with Idle Capacity

question 109

Multiple Choice

Starla Corporation is a specialty component manufacturer with idle capacity.Management would like to use its extra capacity to generate additional profits.A potential customer has offered to buy 4,200 units of component JOLT.Each unit of JOLT requires 6 units of material OX8 and 9 units of material POW6.Data concerning these two materials follow:
$$\begin{array} { | l | c | c | c | c | } \hline \text { Material } & \begin{array} { c } \text { Units in } \\\text { Stock }\end{array} & \begin{array} { c } \text { Original } \\\text { Cost Per } \\\text { Uni }\end{array} & \begin{array} { c } \text { Current } \\\text { Market Price } \\\text { Per Unit }\end{array} & \begin{array} { c } \text { Disposal } \\\text { Value Per } \\\text { Unit }\end{array} \\ 0 \times 8 & 18,600 & \$ 3.60 & \$ 3.70 & \$ 3.36 \\\hline \text { POW6 } & 38,280 & \$ 3.20 & \$ 2.80 & \$ 1.65 \\\hline\end{array}$$
Material OX8 is in use in many of the company's products and is routinely replenished.Material POW6 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up.What would be the relevant cost of the materials,in total,for purposes of determining a minimum acceptable price for the order for product JOLT? (CIMA adapted)

• A) $146,790.
• B) $199,080.
• C) $155,610.
• D) $212,340.

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Definitions:

Italy

A country located in southern Europe, known for its rich history, culture, and significant contributions to art, food, and fashion.

Tariff

A tax imposed by a government on goods and services imported from another country.

Revenues

The gross income a business earns from its fundamental activities, specifically through selling goods or offering services.

Opportunity Cost

The cost of forfeiting the next best alternative when making a decision to pursue a particular action.