Question :
Direct Materials $15.70
Direct Labor $17.50
Variable Manufacturing Overhead $4.50
Fixed Manufacturing Overhead $14.60
Unit Product Cost $52.30
An outside supplier has provided to sell the company all of these parts it requires for $51.90 a unit. If the company accepts this offer, the facilities now being used to make the part would be used to make more units of a product that is in high demand. The extra contribution margin on this other product could be $219,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part could be avoided. Thus, $6.20 of the fixed manufacturing overhead cost being applied to the part could continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost could be applied to the company's remaining products.
Evaluate the maximum amount the company could be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 30,000 units need each year?