Safety Products Currently Outsources an Electrical Switch That Is a Component

Safety Products currently outsources an electrical switch that is a component in its sprinkler systems. The switches are purchased for $20 each. The company is considering making the switches internally and has conducted a study to determine the costs involved. The costs below are projected annual production costs: $$\begin{array} { | l | r | } \hline \text { Unit-level material cost } & \$ 3 \\\hline \text { Unit-level labor cost } & \$ 2 \\\hline \text { Unit-level overhead } & \$ 18 \\\hline \text { Batch-level cost } ( 5,000 \text { units per batch) } & \$ 5,000 \\\hline \text { Product-level supervisory salaries } & \$ 37,500 \\\hline \text { Allocated facility-level costs } & \$ 20,000 \\\hline\end{array}$$ Assume that the company needs 15,000 of the switches, which would be produced in three batches. Assume also that the company will still be operating within the relevant range. If Safety decides to make the parts under these conditions, the total relevant costs will be:

A) $132,500.
B) $162,500.
C) $105,000.
D) $142,500.

Correct Answer:

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