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BigRed Manufacturer owns a factory that produces 5,000 chips per year that it uses for the production of widgets. The company has ample capacity to
BigRed Manufacturer owns a factory that produces 5,000 chips per year that it uses for the production of widgets. The company has ample capacity to produce these widgets. BigRed Manufacturer was recently approached by an outside supplier that offered to produce the widgets for $60 per widget. BigRed Manufacturer has provided the following information about the costs associated in producing its chips. Per unit costs Costs at production of 5,000 chips Direct materials $5.00 $25,000 Direct labour $7.00 $35,000 Variable manufacturing $2.50 $12,500 overhead Allocated common Fixed $20 $100,000 manufacturing overhead Total $34.50 $172,500 What is the maximum price Bigred would be willing to pay the external suppler for these widgets
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