The Talbot makes wheels that It uses In the production of bicycles. Talbot\'s co

Question

The Talbot makes wheels that It uses In the production of bicycles. Talbot's costs to produce 160,000 wheels annually are: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead $32,000 $48,000 $24,000 $64,000 An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $19,000 of annual fixed overhead could be avolded and the facilities now being used could be rented to another company for $48.200 per year. Direct labor is a varlable cost At what purchase price for the wheels would Talbot be Indifferent between making or buyling the wheels? (Round your answer to 2 decimal places.) O $0.77 O $105 O $1.02 OS107

Explanation / Answer

Calculate indifferent purchase price :

Manufacturing cost+Opportunity cost=Buying cost

123000+48200 = 160000X

160000X = 171200

X(Purchase price) = 1.07

so answer is d) $1.07

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