Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 6,000 units, are as follows: Assuming no other use for its facilities, what is the highest price per unit that Cruise Company should be willing to pay for the part?

Question

Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 6,000 units, are as follows:  Assuming no other use for its facilities, what is the highest price per unit that Cruise Company should be willing to pay for the part?

Quizplus · Accepted Answer

To determine the highest price that Cruise Company should be willing to pay for the part, we need to calculate the contribution margin per unit, which is the selling price of the final product minus the unit manufacturing cost of the part.

The total unit manufacturing cost of the part is $35,500/6,000 = $5.92 per unit.

Therefore, the contribution margin per unit is: 
$48 - $5.92 = $42.08

If Cruise Company pays more than the contribution margin per unit for the part, then it would be better off producing the part internally than buying it from an outside supplier.

So, the highest price that Cruise Company should be willing to pay for the part is $42.08.

Since the answer choices are all below the contribution margin per unit, the best choice is the one closest to the contribution margin, which is answer B) $11.

Cruise Company Produces a Part That Is Used in the Manufacture