Question

Bramble Corp. has the following costs when producing 100000 units: Variable costs $600000 Fixed costs 900000 An outside supplier is interested in producing the item for Bramble. If the item is produced outside, Bramble could use the released production facilities to make another item that would generate $200000 of net income. At what unit price would Bramble accept the outside supplier’s offer if Bramble wanted to increase net income by $140000?

Answer 1

Bramble Corp.

Unit price at which Bramble would accept the outside supplier's offer

= $14.40

Step-by-step explanation:

a) Data and Calculations;

Production capacity in units = 100,000

Variable costs = $600,000

Fixed costs = 900,000

Total costs = $1,500,000

Target net income 140,000

Total revenue = $1,640,000

Alternative income (200,000)

Differential revenue $1,440,000 ($1,640,000 - $200,000)

Unit price at which Bramble would accept the outside supplier's offer =

$14.40 ($1,440,000/100,000)