Another manufacturer has offered to supply the part annually

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Gerenuk Company currently produces a key part at a total cost of $120,000. Annual variable costs are $35,000. Of the annual fixed costs, $12,000 relate specifically to this part. The remaining fixed costs are unavoidable.

Another manufacturer has offered to supply the part annually for $110,000. 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 $25,000 per year. Given all of these alternatives, what is Gerenuk Company's lowest net relevant cost for the parts?

Reference no: EM131025616

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