Question
Palmer Music produces 60,000 CDs on which to record music. The CDs have the following costs: Direct Materials$11,200 Direct Labor15,000 Variable Overhead4,200 Fixed Overhead7,000 None
Palmer Music produces 60,000 CDs on which to record music. The CDs have the following costs:
Direct Materials$11,200
Direct Labor15,000
Variable Overhead4,200
Fixed Overhead7,000
None of Palmer's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $4,000 if the CDs were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the CDs, what is the maximum external price that Palmer would be willing to accept to acquire the 60,000 units externally?
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