W.T. Ginsburg Engine Company manufactures part ACT31107 used in several of its engine models. Monthly production costs for 1,010 units are as follows:

It is estimated that 7% of the fixed overhead costs assigned to ACT31107 will no longer be incurred if the company purchases ACT31107 from the outside supplier. W.T. Ginsburg Engine Company has the option of purchasing the part from an outside supplier at $94.75 per unit.
The maximum price that W.T. Ginsburg Engine Company should be willing to pay the outside supplier is
________.
A) $82 per ACT31107 part
B) $83.43 per ACT31107 part
C) $100 per ACT31107 part
D) $101.25 per ACT31107 part

Question

W.T. Ginsburg Engine Company manufactures part ACT31107 used in several of its engine models. Monthly production costs for 1,010 units are as follows:

It is estimated that 7% of the fixed overhead costs assigned to ACT31107 will no longer be incurred if the company purchases ACT31107 from the outside supplier. W.T. Ginsburg Engine Company has the option of purchasing the part from an outside supplier at $94.75 per unit.
The maximum price that W.T. Ginsburg Engine Company should be willing to pay the outside supplier is
________.
A) $82 per ACT31107 part 
B) $83.43 per ACT31107 part 
C) $100 per ACT31107 part 
D) $101.25 per ACT31107 part

Quizplus · Accepted Answer

Avoidable costs = $84,260 / 1,010 units = $83.43 per part

WT Ginsburg Engine Company Manufactures Part ACT31107 Used in Several