Answer the following questions using the information below:
Casper's Engine Company manufactures part TE456 used in several of its engine models.Monthly production costs for 1000 units are as follows:
$$\begin{array} { l r }
\text { Direct materials } & \$ 40000 \
\text { Direct labour } & 10000 \
\text { Variable overhead costs } & 30000 \
\text { Fixed overhead costs } & \underline{ 20000 }\
\quad \text { Total costs } & \underline{ \$ 100000} \
\end{array}$$ 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.Casper's Engine Company has the option of purchasing the part from an outside supplier at $85 per unit.
-The maximum price that Casper's Engine Company should be willing to pay the outside supplier is:
A)$100 per TE456 part.
B)$82 per TE456 part.
C)$80 per TE456 part.
D)$98 per TE456 part.

Question

Answer the following questions using the information below:
Casper's Engine Company manufactures part TE456 used in several of its engine models.Monthly production costs for 1000 units are as follows:
 $$\begin{array} { l r } 
\text { Direct materials } & \$ 40000 \
\text { Direct labour } & 10000 \
\text { Variable overhead costs } & 30000 \
\text { Fixed overhead costs } & \underline{ 20000 }\
\quad \text { Total costs } & \underline{ \$ 100000} \
\end{array}$$ 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.Casper's Engine Company has the option of purchasing the part from an outside supplier at $85 per unit.
-The maximum price that Casper's Engine Company should be willing to pay the outside supplier is:
A)$100 per TE456 part.
B)$82 per TE456 part.
C)$80 per TE456 part.
D)$98 per TE456 part.

Quizplus · Accepted Answer

The maximum price Casper's Engine Company should be willing to pay the outside supplier is the cost it would incur to make the part itself. This includes all variable costs and any avoidable fixed costs associated with making the part in-house. If the cost to produce the part internally is $82, then this is the maximum price they should be willing to pay an outside supplier, as paying more would result in higher costs than producing it themselves.

Answer the Following Questions Using the Information Below: Casper's Engine

Answer the Following Questions Using the Information Below:
Casper's Engine