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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 labour | $4.00 |
Variable manufacturing overhead | 6.00 |
Fixed manufacturing overhead | $3.00 |
Total cost | $15.00 |
The fixed overhead costs are unavoidable. |
|
- Erickson Company has offered to sell 5,000 units of the same part to Spahr Company for $14 per unit. Assuming the company has no other use for its facilities, what should Spahr Company do?
- Make the part and save $1 per unit.
- Make the part and save $2 per unit.
- Buy from Erickson and save $1 per unit.
- Buy from Erickson and save $2 per unit.
- Assuming no other use for its facilities, what is the highest price per unit that Spahr Company should be willing to pay for the part?
- $15
- $14
- $12
- $10
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