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Flamingo Company is considering whether to continue to make a component called Omega or to buy it from an outside supplier. The company uses 16,000

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Flamingo Company is considering whether to continue to make a component called Omega or to buy it from an outside supplier. The company uses 16,000 units of the components each year. The unit product cost of the component according to the company's cost as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead $5.00 Unit product cost $22.70 $7.50 $8.31 $1.89 Assume that direct labor is a variable cost of the fixed manufacturing overhead, 40% is avoidable if the component were bought from the outside supplier. Omega requires 1 minute of machine time and that machine time is the company's current constraint. If Omega were bought this machine time would be freed up for use on other products of which the company has two choices as follows: Product A Product B Minutes required from the constraining machine per unit 2 4 Contribution margin per unit $7.20 $10.40 22 All of the units of Product A and Product B produced can be sold. When deciding whether to make or buy the component, what is the maximum price the company would pay if it decides to buy? A $26.30 . $23.30 C. $21.30 D. $22.25 E. None of the above

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