Make or buy (continuation of 11-29). Assume that, as in requirement 7 of Problem 11-29, a proposal is received from an outside supplier who will make and ship high- decision making and style pens directly to the Class Company’s customers as sales orders are forwarded from Class’s sales staff. If the supplier’s offer is accepted, the present plant facilities will be used to make a new pen whose unit costs will be:
Variable manufacturing costs $5.50 Fixed manufacturing costs 1.10 Variable marketing costs 2.20 Fixed marketing costs for the new pen 0.55 Total costs $9.35 Total fixed manufacturing overhead will be unchanged from the original level given at the begin¬
ning of Problem 11-29. Fixed marketing costs for the new pens are over and above the fixed marketing costs incurred for marketing the high-style pens at the beginning of Problem 11-29.
The reduction of 20% in variable marketing costs carries over to this problem. The new pen will sell for $9.90. The minimum desired operating income on the two pens taken together is $55,000 per year. New pen sales will be 120,000 units.
Required ^^^What is the maximum purchase cost per unit that the Class Company would be willing to pay // for;subcontracting the production of the high-style pens?