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Perry's Cycle Company manufactures annually 20,000 units of TushSeat,a bicycle seat used on many of the company's products,and also sold directly to retailers for $38 per unit.At the current level of production,the cost per unit to produce TushSeat consists of:
It has come to the attention of management that a seat of similar quality can be purchased from outside suppliers.
-Assume that Perry's fixed costs remain unchanged if the seats are purchased from an outside supplier.In order to operate more profitably by buying the seats rather than manufacturing them,Perry must negotiate a price per unit from the outside supplier that is less than:
A)$27.
B)$25.
C)$22.
D)$23.

Question

[The following information applies to the questions displayed below.]
Perry's Cycle Company manufactures annually 20,000 units of TushSeat,a bicycle seat used on many of the company's products,and also sold directly to retailers for $38 per unit.At the current level of production,the cost per unit to produce TushSeat consists of:
  It has come to the attention of management that a seat of similar quality can be purchased from outside suppliers.
-Assume that Perry's fixed costs remain unchanged if the seats are purchased from an outside supplier.In order to operate more profitably by buying the seats rather than manufacturing them,Perry must negotiate a price per unit from the outside supplier that is less than:
A)$27. 
B)$25. 
C)$22. 
D)$23.

Quizplus · Accepted Answer

Perry's Cycle Company can save money if it purchases TushSeats from an outside supplier at a cost per unit that is lower than its current cost of $27.50 per unit. Therefore, Perry should negotiate a price per unit that is less than this amount, and the only option that meets this threshold is C, $22 per unit.

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