Rite aid manufacturs 10000 units of processor chip. A-399 each year for use on its production line. At this level of activity the cost per unit of processor chip is:

Direst materials: $354

Direct labor : 20

Variable manufacturing overhead: 8

Fixed manufacturing overhead: 80

Total manufacturing cost per unit: $462

An outside supplier has offered to sell all units of processor chip the rite-aid Company requires. If the company decided to discontinue making processor chip, 10% of the above fixed manufacturing overhead costs could be avoided.

The rite-aid company could use the facilities presently devoted to the production of processor chip to increase production of another product by 2,500 units, which would yield an additional contribution margin of $80,000 annually.

Q: What is the maximum price the rite-aid Company would be willing to pay the outside supplier for processor chip?