7. The Talbot Corporation makes wheels that it uses in the production of bicycle

Question

7. The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 220,000 wheels annually are: Direct materials Direct labor Variable manufacturing overheed Flxed manufacturing overhead $44,000 $66,000 33,000 $82,000 An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $37,000 of annual foxed overhead could be avoided and the facilities now being used could be rented to another company for $93,400 per year. Direct labor is a variable cost. At what purchase price for the wheels would Talbot be indifferent between making or buying the wheels? (Round your answer to 2 decimal places.) $112 $102 O $0.75 $117

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up   Statementshowing Computations Paticulars Amount Direct Materials                     44,000.00 Direct Labour                     66,000.00 Variable manufacturing overhead                     33,000.00 Fixed manufacturing overhead                     37,000.00 Total cost of manufacturing                   180,000.00 No of units                   220,000.00 Relevant make cost per unit = 180000/220000                                0.82 Purchase cost =   x Less rent from renting=93400/220000                             (0.42) Net cost to purchase one unit x - .42 x - .42 = .82 x = .82 + .42 x = 1.24 per unit Indifferent price = 1.24 per unit

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