Kramer 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: Direct materials 35 dollars

Direct labor 10 dollars

Variable manufacturing overhead 8 dollars

Fixed manufacturing overhead 20 dollars

Total manufacturing cost per unit 73 dollars An outside supplier has offered to sell Kramer Company all of the axial taps it requires. If Kramer 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.

A )

Assume Kramer 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 Kramer Company accept the offer? Fully support your answer with appropriate calculations.

B)

Assume that Kramer 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 $160,000 annually and approximately 8,000 units per year. What is the maximum price Kramer Company should be willing to pay the outside supplier for axial taps?