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