Govoni Corporation Is a Specialty Component Manufacturer with Idle Capacity

Govoni 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 9,500 units of component AIG. Each unit of AIG requires 6 units of material M51 and 4 units of material M93. Data concerning these two materials follow:
Material M51 is in use in many of the company's products and is routinely replenished. Material M93 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 AIG?

A) $505,667
B) $502,550
C) $458,850
D) $464,550

Correct Answer:

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