Talboe Company makes wheels which it uses in the production of children\'s wagon
ID: 2497344 • Letter: T
Question
Talboe Company makes wheels which it uses in the production of children's wagons. Talboe's costs to produce 100,000 wheels annually are as follows:
58,000
$123,000
An outside supplier has offered to sell Talboe similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $13,000 of annual fixed manufacturing overhead would be avoided and the facilities now being used to make the wheels would be rented to another company for $35,000 per year.
What is the highest price that Talboe could pay the outside supplier for each wheel and still be economically indifferent between making or buying the wheels? (Round your answer to 2 decimal places.)
Talboe Company makes wheels which it uses in the production of children's wagons. Talboe's costs to produce 100,000 wheels annually are as follows:
Explanation / Answer
Solution;
(A). Caluculation of Making a Product:
Total Manufacturing Costs = $ 1,23,000
Total Price = Total Cost / Total Units
= $ 1,23,000 / 1,00,000
= $ 1.23 Per Unit
(*) And Additional Rent $ 35,000 Per Year.
(B). Caluculation of Purchasing the Products:
Total Units = 1,00,000
Each Unit Cost = 0.80 Per Unit
Cost = 1,00,000 * 0.80
= $ 80,000
Additional Cost Fixed Mfg Exp = 13,000
Total Cost = $ 80,000 + 13,000
= 93,000
(C). Highest Price is to Making in Highest Price = 1.23 Per Unit
Lowest Price is ti Purchasing in Lowest Price = 0.80 Per Unit
Conclusion:
Finally Making Cost is Heavy. But Purchasing Cost is Low. So Purchasing is Best.
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