Question

ahrends corporation makes 60,000 units per year of a part it uses in the products it manufactures. the unit product cost of this part is computed as follows: direct materials $ 21.30 direct labor 26.70 variable manufacturing overhead 7.20 fixed manufacturing overhead 36.70 unit product cost $ 91.90 an outside supplier has offered to sell the company all of these parts it needs for $78.20 a 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 on this other product would be $462,000 per year. if the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. however, $31.90 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. this fixed manufacturing overhead cost would be applied to the company's remaining products. what is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 60,000 units required each year? (round your intermediate calculations to 2 decimal places.) multiple choice $99.60 per unit $7.70 per unit $67.70 per unit $91.90 per unit

Answer 1

The maximum amount the company should be willing to pay an outside supplier per unit for the part is $97.10.

Step-by-step explanation:

The maximum amount the company should be willing to pay an outside supplier per unit for the part can be calculated by comparing the costs of producing the part internally with the costs of purchasing it from the supplier. From the given information, we can determine that if the company purchases the part from the outside supplier, it will save the direct labor cost of $26.70 per unit.

However, $31.90 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.

Therefore, the maximum amount the company should be willing to pay per unit for the part is equal to the unit product cost minus the savings in direct labor cost, plus the portion of fixed manufacturing overhead cost that would continue. Using the given values, the maximum amount the company should be willing to pay is:

Unit Product Cost - Saving in Direct Labor Cost + Portion of Fixed Manufacturing Overhead Cost

$91.90 - $26.70 + $31.90 = $97.10 per unit

Therefore, the company should be willing to pay a maximum of $97.10 per unit to the outside supplier if the supplier commits to supplying all 60,000 units required each year.