Talboe Company makes wheels which it uses in the production of children's wagons. Talboe's costs to produce 150,000 wheels annually are as follows:
| Direct material |
$ 30,000 |
| Direct labor |
45,000 |
| Variable manufacturing overhead |
22,500 |
| Fixed manufacturing overhead |
63,000
|
| Total |
$160,500
|
|
An outside supplier has offered to sell Talboe similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $18,000 of annual fixed manufacturing overhead would be avoided and the facilities now being used to make the wheels would be rented to another company for $46,500 per year.
|
What is the highest price that Talboe could pay the outside supplier for each wheel and still be economically indifferent between making or buying the wheels?