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Spahr Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a
Spahr Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 5,000 units, are as follows: Direct materials $2.00 Direct labor $4.00 Variable manufacturing overhead $3.00 Fixed manufacturing overhead $1.00 Total cost $10.00 The fixed overhead costs are unavoidable. Assuming Spahr Company can purchase 5,000 units of the part from Sexton Company for $13 each, and the facilities currently used to make the part could be rented out to another manufacturer for $24,000 a year, what should Spahr Company do? A) Buy the part and save $0.80 per unit. B) Buy the part and save $1.80 per unit. C) Make the part and save $2.20 per unit. D) Make the part and save $4.20 per unit. Calico Joe Fabrics sells a single product. The company estimates total fixed costs at $360,000 and variable costs of $22 per unit with demand, price, and total variable costs as follows: Units Demanded Unit Price 73,000 $31 83,000 30 93,000 29 103,000 28 What price should Calico Joe Fabrics charge to maximize profits? A) 28 B) 29 C) 30 D) 31
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