Gerenuk company lowest net relevant cost

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Reference no: EM131180412

Gerenuk Company currently produces a key part at a total cost of $80,000.  Annual variable costs are $40,000.  Of the annual fixed costs, $15,000 relate specifically to this part.  The remaining fixed costs are unavoidable.

Another manufacturer has offered to supply the part annually for $100,000.  The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $65,000 per year.  Alternatively, the facilities could be rented out at $80,000 per year.  Given all of these alternatives, what is Gerenuk Company's lowest net relevant cost for the parts?

Reference no: EM131180412

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