Use the information below to answer the following question(s):
Spahr 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 5,000 units, are as follows:

-Assuming no other use for its facilities, what is the highest price per unit that Spahr Company should be willing to pay for the part?

Question

Use the information below to answer the following question(s):
Spahr 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 5,000 units, are as follows:
 
-Assuming no other use for its facilities, what is the highest price per unit that Spahr Company should be willing to pay for the part?

Quizplus · Accepted Answer

The highest price Spahr Company should be willing to pay for the part is the sum of the avoidable costs per unit if it were to make the part itself. This includes direct materials, direct labor, variable manufacturing overhead, and any other costs that can be avoided by not producing the part in-house. If the cost to purchase the part is equal to or less than this sum, it would be more cost-effective to purchase the part rather than produce it. Without specific numbers provided for these costs, a detailed calculation cannot be made, but the principle is that the highest price should not exceed the total avoidable costs of production.

Use the Information Below to Answer the Following Question(s)