Konrade's Engine Company manufactures part TE456 used in several of its engine models. Monthly production...
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Accounting
Konrade's Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1,000 units are as follows:
Direct materials
$40,000
Direct labour
10,000
Variable overhead costs
30,000
Fixed overhead costs
20,000
Total costs
$100,000
It is estimated that 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier. Konrade's Engine Company has the option of purchasing the part from an outside supplier at $85 per unit.
The maximum price that Konrade's Engine Company should be willing to pay the outside supplier is
A. $82 per TE456 part.
B. $98 per TE456 part.
C. $100 per TE456 part.
D. $50 per TE456 part.
E. $80 per TE456 part.
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