Lasso Corporation manufactures a variety of appliances which all use Part B89. Currently, Lasso manufactures Part B89 itself. It has been producing 9000 units of Part B89 annually. The annual costs of producing Part B89 at the level of 9000 units include: All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier. Lasso has no alternative use for its manufacturing facilities. Nadal Parts Company has offered to sell 9000 units of Part B89 to Lassof or $20.40 per unit. What is the highest price per unit that Lasso should be willing to pay for the part?

Question

Lasso Corporation manufactures a variety of appliances which all use Part B89. Currently, Lasso manufactures Part B89 itself. It has been producing 9000 units of Part B89 annually. The annual costs of producing Part B89 at the level of 9000 units include:  All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier. Lasso has no alternative use for its manufacturing facilities. Nadal Parts Company has offered to sell 9000 units of Part B89 to Lassof or $20.40 per unit. What is the highest price per unit that Lasso should be willing to pay for the part?

Quizplus · Accepted Answer

In order to determine the highest price per unit that Lasso should be willing to pay, we need to compare the costs of producing Part B89 internally versus purchasing it from Nadal Parts Company.

The total cost of producing Part B89 internally is $57,500 + ($7.60 x 9,000) = $124,100

Therefore, the maximum price per unit that Lasso should be willing to pay is equal to the total cost of producing Part B89 internally divided by 9,000 units, which is $124,100 / 9,000 = $13.79 per unit.

However, Nadal Parts Company is offering to sell Part B89 for $20.40 per unit. This price is higher than the maximum price per unit that Lasso should be willing to pay, so it may not be a cost-effective option for Lasso to purchase from Nadal Parts Company.

Therefore, Lasso should continue to produce Part B89 itself at a cost of $13.79 per unit, which is cheaper than purchasing it from Nadal Parts Company for $20.40 per unit. However, if Lasso can negotiate with Nadal Parts Company to lower the selling price to $15.70 per unit, then it would be more cost-effective for Lasso to purchase Part B89 from Nadal Parts Company instead of producing it internally.

Lasso Corporation Manufactures a Variety of Appliances Which All Use