Reference no: EM132527111

Vaughn Music produces 59800 blank CDs on which to record music. The CDs have the following costs:

Direct Materials               $11900

Direct Labour                      14800

Variable Overhead                3200

Fixed Overhead                   6500

Question 1: None of Vaughn's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $4200 if the CDs were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the CDs, what is the maximum external price that Vaughn would be willing to accept to acquire the 59800 units externally?

Option 1: $36400

Option 2: $32200

Option 3: $34100

Option 4: $40600