Foto Company makes 30,000 units per year of a part it uses in the products it ma

Question

 Foto Company makes 30,000 units per year of a part it uses in the products it manufactures. The cost per unit of this part is shown below:  direct materials .............. $11.45 direct labor ..................   9.35 variable overhead .............   7.75 allocated fixed overhead ......   4.95 total ......................... $33.50  An outside supplier has offered to sell Foto Company 30,000 of these parts for $32.25 per unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin earned on this other product would be $90,000 per year.  Calculate the selling price per unit charged by the outside supplier that would make Foto economically indifferent between making and buying the part. 

Explanation / Answer

Total relevant cost of making the product = 30000*(11.45+9.35+7.75)+90000= 946500 Selling price per unit that would make indifferent between making and buying the part = 946500/30000= $31.55

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.