Kramer Company makes 5,400 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		$	49
Direct labor			24
Variable manufacturing overhead			22
Fixed manufacturing overhead			25
Total manufacturing cost per unit		$	120

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.

Required:

a1.	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 $116 each, calculate the total cost for making the axial taps.

Total cost

$

a2.

Should Kramer Company accept the offer?

	Yes
	No

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 $108,000 annually. What is the maximum price Kramer Company should be willing to pay the outside supplier for axial taps?

Maximum acceptable price

$