calculate highest price to pay

A Company makes wheels which it uses in the production of children's wagons. The company's costs to produce 190,000 wheels annually are as follows:
Direct material $ 38,000
Direct labor 57,000
Variable manufacturing overhead 28,500
Fixed manufacturing overhead 67,000
Total $190,500
An outside supplier has offered to sell the company similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $22,000 of annual fixedmanufacturing overhead would be avoided and the facilities now being used to make the wheels would be rented to another company for $52,100 per year.
What is the highest price that the company could pay the outside supplier for each wheel and still be economically indifferent between making or buying the wheels?$1.04 or $.77 or $.99 or $1.00


Expert Solution
No answers

Submit Your Answer