Wehner Company is currently manufacturing Part ABS-43, producing 53,900 units an

Question

Wehner Company is currently manufacturing Part ABS-43, producing 53,900 units annually. The part is used in the production of several products made by Wehner. The cost per unit for ABS-43 is as follows:

Of the total fixed overhead assigned to ABS-43, $16,170 is direct fixed overhead (the annual lease cost of machinery used to manufacture Part ABS-43), and the remainder is common fixed overhead. An outside supplier has offered to sell the part to Wehner for $60.66. There is no alternative use for the facilities currently used to produce the part. No significant non-unit-based overhead costs are incurred.

Required:

1. Should Wehner Company make or buy Part ABS-43?
Wehner should - buy        Item 1 the part. This will produce total cost savings of $ .

2. What is the maximum amount per unit that Wehner would be willing to pay to an outside supplier? Round your answer to the nearest cent.
$ per unit

Explanation / Answer

relevant cost of manufacture option Direct materials $47.55 Direct labor 10.2 Variable overhead 3.1 total variable cost per unit $60.85 no of units 53900 total variable cost 3279815 relevant fixed cost 16170 total relevant cost 3295985 relevant cost of purchase option no of units 53900 purchase price per unit 60.66 cost 3269574 1 company should buy the part it will have savings of $ -26411 2 maximum price per unit 61.15

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