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Question - XYZ Company makes 20,000 motors to be used in the production of its power lawn mowers. The cost per motor at this level of activity is as follows:
Direct materials $ 9.50
Direct labor 8.60
Variable overhead 3.75
Allocated fixed overhead 4.35
Total $26.20
The motor has recently become available from an outside supplier for $25 per motor. If XYZ purchases the motor from the outside supplier, the space that is currently being used to manufacture the motor can be rented out for $154,000 per year.
Calculate the selling price per unit charged by the outside supplier that would make XYZ economically indifferent between making and buying the motor.
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