Answer :
Answer:
would realize a financial advantage by purchasing this part from an outside supplier only if the supplier's unit price is less than _$14__.
Explanation:
Elly industries.
Current cost of production by producing in-house:
Quantity of MR24 produced = 30,000
Variable cost of $11 per unit = $330,000
Fixed Costs = $150,000
Total cost of production = $480,000
If we purchase the 30,000 pieces from outside producer;
The maximum price that will give us an advantage is the one that will ensure our Current Cost of Production and the new costs of goods available (based on outsourced production) matches.
40% of Fixed Costs will remain incurred from Elly's factory = $150,000 x 40% = $60,000
This leaves $480,000 minus $60,000 ($420,000) as the maximum costs that the outsource firm can charge for the contract to make sense.
= $420,000 / 30,000 units
= $14 per unit
1. The purchasing this part from an outside supplier only if the supplier's unit price is less than should be $14 per unit.
Calculation of the unit price:
Since
40% of Fixed Costs will remain incurred from Elly's factory i..e
= $150,000 x 40%
= $60,000
Now the remaining amount should be
= $480,000 - $60,000
= $420,000
Now the unit price should be
= $420,000 / 30,000 units
= $14 per unit
hence, The purchasing this part from an outside supplier only if the supplier's unit price is less than should be $14 per unit.
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