Question

Pelusoec Co., a manufacturer of snowmobiles, is considering outsourcing the production of its headlights to an outside supplier. In the company’s current in-house production process, each headlight requires $4 of direct materials, $3 of direct labor, and $6 of total manufacturing overhead. 40% of the manufacturing overhead is a common fixed cost that would be unaffected by the outsourcing decision, while the remaining 60% is traceable to the outsourcing decision. At what outside supplier price would the company be indifferent between making and buying the headl

Answer 1

Answer: $10.60

Step-by-step explanation:

The supplier price which would make the company indifferent is the cost that the company would incur if they produced it themselves.

= Direct labor + Direct materials + Affected manufacturing overhead

= 4 + 3 + (6 * 60%)

= $10.60