Kramer Company makes 4,000 units per year of a part called an axial tap used in one of its products. Data concerning the unit costs of the axial tap follow:

Direct Materials	$ 35.00
Direct Labour	$ 10.00
Variable Overhead	$ 8.00
Fixed Overhead	$ 20.00
Total Manufacturing Cost per Unit	$ 73.00

An outside supplier has offered to sell Kramer all of the axial taps it requires. If Kramer decides to discontinue making the taps, 40% of the fixed overhead costs could be avoided. Assume that direct labour is variable.

Required:

1. Assume Kramer Company has no alternative use for the facilities. If an outside supplier offers to sell Kramer the axial taps for $65 each, should the company accept the offer? Support your answer with calculations.

1. Assume that Kramer could use the facilities to expand production for another product that would yield an additional contribution margin of $80,000 annually. What is the maximum price Kramer should be willing to pay the outside supplier for the taps?