Question
Talboe Company makes wheels which it uses in the production of children's wagons. Talboe's costs to produce 230,000 wheels annually are as follows: Direct material
Talboe Company makes wheels which it uses in the production of children's wagons. Talboe's costs to produce 230,000 wheels annually are as follows: |
Direct material | $ 46,000 |
Direct labor | 69,000 |
Variable manufacturing overhead | 34,500 |
Fixed manufacturing overhead | 73,000 |
Total | $222,500 |
An outside supplier has offered to sell Talboe similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $28,000 of annual fixed manufacturing overhead would be avoided and the facilities now being used to make the wheels would be rented to another company for $70,900 per year. |
What is the highest price that Talboe could pay the outside supplier for each wheel and still be economically indifferent between making or buying the wheels? (Round your answer to 2 decimal places.) |
$1.08
$0.77
$0.97
$1.03
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