9.4

Manoah Company makes 4,000 units per year of a part called an axial tep for use in one of its products. Data concerning the unit production costs of the axdal tap follow: An outside supplier has offered to sell Manoah Company all of the axlal taps it requires. If Manoah Company decided to discontinue making the axial taps, 40% of the above fixed manufacturing overhead costs could be avolded. Assume that direct labour is a variable cost. Required: 1. Assume Manoah Company has no alternative use for the facilities presently devoted to productio of the axial taps. If the outside supplier offers to sell the axial taps for $65 each, should Manoah Company accept the offer? Fully support your answer with appropriate calculations. 2. Assume that Manoah Company could use the facilities presently devoted to production of the axia taps to expand production of another product that would yield an additional contribution margin of $80,000 annually. What is the maximum price Manoah Company should be willing to pay the outside supplier for axial taps