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The variable overhead per unit is the fixed cost subtracted from the total overhead- 15-10=$5
• The variable overhead for a pair of bindings is 10% of the variable overhead- 5x10%=$0.50
• The total cost for a pair of bindings is
o Direct Material = $6
o Direct Labor = $3.50
o Variable overhead = $0.50
o Total Cost = $ 10
The total cost of Minnetonka making the bindings is $10 dollars. The subcontractor gave a bid of $10.50 a pair for the bindings. Since the cost of making the bindings is less, Minnetonka should make the bindings.
2. What would be the maximum purchase price acceptable to the Minnetonka Corporation for the bindings? ( AIU Online Virtual Campus, 2008)
Because the total cost of Minnetonka making the bindings is $10...
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