Question
A company manufactures 5,450 units of Part Z each year for use on its production line. At this level of activity, the cost per
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A company manufactures 5,450 units of Part Z each year for use on its production line. At this level of activity, the cost per unit of Part Z is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing cost per unit $68 35 24 70 3220 197 An outside supplier has offered to sell the company all units of Part Z it requires. If the company decides to discontinue making Part Z, 20% of the above fixed manufacturing overhead costs could be avoided. Assume that direct labor is a variable cost. In addition, making one unit of Part Z uses 2 hour of direct labor that is the company's constraint. If the company discontinues making Part Z, the freed up labor hours would be used to make another product that requires 1 hour of direct labor and has a contribution margin of $50 per unit. What is the maximum price the company would be willing to pay the outside supplier for Part Z if it decides to buy? $ per unit
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