Answer the following questions using the information below: Genent\'s Engine Com

Question

Answer the following questions using the information below: Genent's Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1,000 units are as follows: Direct materials Direct labor Variable overhead costs Fixed overhead costs $46,000 11,500 34,500 23,000 $115.000 Total costs It is estimated that 8% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier. Genent's Engine Company has the option of purchasing the part from an outside supplier at $97.75 per unit. 26) The maximum price that Genent's Engine Company should be willing to pay the outside supplier 26) is A)S11684 per TE456 part B) $92 per TE456 part C) S115 per TE456 part D) $93.84 per TE456 part

Explanation / Answer

Calculate relevant cost of manufacturing :

so answer is d) $93.84 per TE456 part

Direct material 46000 Direct labour 11500 Variable overhead 34500 Fixed overhead (23000*8%) 1840 Total relevant cost 93840 Unit 1000 Maximum price per unit 93.84

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