company manufactures 1,000 units of processor chip, A-887, each year for use on its production line. At this level of activity, the cost per unit of processor chip is:

Direct materials $ 345

Direct labor 20

Variable manufacturing overhead 8

Fixed manufacturing overhead 80

Total manufacturing cost per unit $ 453

An outside supplier has offered to sell all units of processor chip the company requires. If the company decided to discontinue making processor chip, 80% of the above fixed manufacturing overhead costs could be avoided.

The company could use the facilities presently devoted to the production of processor chip to increase the production of another product by 2,500 units, which would yield an additional contribution margin of $100,000 annually.

Q.) What is the maximum price the company would be willing to pay the outside supplier for processor chip?

A.) $ per unit