Kentucky Motors has manufactured compressor parts at its plant in Pitcairn, Indiana, for the past 18 years. AN outside supplier, Superior Compressor Company, has offered to supply compressor model A238 at the price of 200 per unit. Unit manufacturing costs for A238 are as follows:
Direct materials 80
Direct labor 60
Unit related support 26
Batch related support 22
Product sustaining support 8
Facility sustaining support 17
Total costs $213
a. Should SUperior Compressor's offer be accepted if the plant is presently operating below capacity?
b. What is the maximum acceptable purchase price if the plant facilities are fully utilized at present and if any additional available capacity can be deployed for the production of other compressors?