Question

The Bogart Company produces 5,000 units of item SLM 46 annually at a total cost of $200,000

Direct materials $ 20,000
Direct labor 55,000
Variable overhead 45,000
Fixed overhead 80,000
Total $ 200,000

The Conner Company has offered to supply all 5,000 units of SLM 46 per year for $35 per unit. If Bogart accepts the offer, $8 per unit of the fixed overhead would be saved. In addition, some of Bogart's leased facilities could be vacated, reducing lease payments by $30,000 per year. At what price would Bogart be indifferent to Conner's offer?

a. $35.
b. $38.
c. $40.
d. $24.

Answer 1

Option B is the answer

Step-by-step explanation:

Avoidable costs = 20,000+55,000+45,000 + (8*5000)+30,000

= 190,000

= 190,000/5,000 units

= $38 Option B is the answer