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Question(s) / Instruction(s):

A company produces 1,000 units of a component per month. The total manufacturing costs of the component are as follows:

Direct materials                                                $10,000

Direct labor                                         5,000

Variable overhead                           5,000

Fixed overhead                                                30,000

Total manufacturing cost              $50,000

An outside supplier has offered to supply the component at $30 per unit. It is estimated that 20% of the fixed overhead assigned to the component will no longer be incurred if the company purchases it from the outside supplier. What is the maximum price that the company should be willing to pay the outside supplier?

 a)           $30 per unit.

 b)           $26 per unit.

 c)           $20 per unit.

 d)           $15 per unit.

 

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