This Little Light, Inc. is a manufacturer of lamps. Little Light makes 40,000 units per year of a part that it uses in the manufacturing of each lamp. At this activity level, the unit production cost is $7.17. Of this amount, $4.71 is for unit variable production costs. The remainder is for fixed production costs and equals $98,400. Little Light has identified an outsider supplier who sells the needed part. If the part is purchased from the outsider supplier, 15% of Little Light's fixed manufacturing costs will be eliminated. Assume Little Light will need 50,000 of the part next year and that the freed up capacity can be rented out to another company for $31,740. At what purchase price will Little Light be economically indifferent between making the part and buying the part?

This Little Light, Inc. is a manufacturer of lamps. Little Light makes 40,000 units per year of a part that it uses in the manufacturing of each lamp. At this activity level, the unit production cost is $7.17. Of this amount, $4.71 is for unit variable production costs. The remainder is for fixed production costs and equals $98,400. Little Light has identified an outsider supplier who sells the needed part. If the part is purchased from the outsider supplier, 15% of Little Light's fixed manufacturing costs will be eliminated. Assume Little Light will need 50,000 of the part next year and that the freed up capacity can be rented out to another company for $31,740. At what purchase price will Little Light be economically indifferent between making the part and buying the part?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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