Roddey Corporation Is a Specialty Component Manufacturer with Idle Capacity

question 155

Multiple Choice

Roddey 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 2,900 units of component GEE. Each unit of GEE requires 3 units of material R39 and 8 units of material I59. Data concerning these two materials follow: Material R39 is in use in many of the company's products and is routinely replenished. Material I59 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 GEE?

• A)$224,605
• B)$196,765
• C)$228,204
• D)$193,285

---

Definitions:

Direct Labor Variances

The differences between the actual labor costs incurred and the standard labor costs for the actual production achieved.

Direct Labor Costs

The wages paid to employees who are directly involved in the production of goods or services, such as assembly line workers or craftsmen.

Standard Costs

Predetermined or estimated costs to perform an operation or produce a good, used as benchmarks against actual costs.

Direct Labor

Direct labor relates to the work of employees who are directly involved in the production of goods or services.