Foto Company makes 50,000 units per year of a part it uses in the products it manufactures. The cost per unit of this part is shown below: Direct materials Direct labor Variable overhead $13 $10.10 $6.50 Allocated fixed overhead $8.60 Total $38.20 An outside supplier has offered to sell Foto Company 50,000 of these parts for $31.60 per unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin earned on this other product would be $120,000 per year. Calculate the selling price per unit charged by the outside supplier that would make Foto economically indifferent between making and buying the part.

Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter5: Process Costing
Section: Chapter Questions
Problem 1PA: The following product Costs are available for Haworth Company on the production of chairs: direct...
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Foto Company makes 50,000 units per year of a part it uses in the products it
manufactures. The cost per unit of this part is shown below:
Direct materials
Direct labor
Variable overhead
$13
$10.10
$6.50
Allocated fixed overhead $8.60
Total
$38.20
An outside supplier has offered to sell Foto Company 50,000 of these parts for
$31.60 per unit. If the company accepts this offer, the facilities now being used to
make the part could be used to make more units of a product that is in high
demand. The additional contribution margin earned on this other product would
be $120,000 per year.
Calculate the selling price per unit charged by the outside supplier that would
make Foto economically indifferent between making and buying the part.
Transcribed Image Text:Foto Company makes 50,000 units per year of a part it uses in the products it manufactures. The cost per unit of this part is shown below: Direct materials Direct labor Variable overhead $13 $10.10 $6.50 Allocated fixed overhead $8.60 Total $38.20 An outside supplier has offered to sell Foto Company 50,000 of these parts for $31.60 per unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin earned on this other product would be $120,000 per year. Calculate the selling price per unit charged by the outside supplier that would make Foto economically indifferent between making and buying the part.
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