Graham Company is currently manufacturing Part 20B, producing 15,000 units amiually.

The part is used in the production of several products made by Graham. The cost per unit for 20B is as follows:

Of the total fixed overhead assigned to 20B, $9,000 is direct fixed overhead (the annual lease cost of machinery used to manufacture Part 20B) and the remainder is common fixed overhead. An outside supplier has offered to sell the part to Graham for $38.25. There is no alternative use for the facilities currently used to produce the part. There are no significant nonunit-based overhead costs.
Required:
1. Should Graham Company make or buy Part 20B?
2. What is the most amount per unit that Graham would be willing to pay an outside supplier?

Transcribed Image Text:

Direct materials $20.00 Direct labor 12.00 Variable overhead 5.00 Fixed overhead 3.00 Total $40.00