Use the facilities presently devoted to production

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Reference no: EM13789143

Kirsten makes 100,000 units per year of a part called B345 gasket for use in one of its products. The following table provides data concerning unit production costs of B345 gasket:

Direct Materials: $0.15

Direct Labor: $0.10

Variable Manufacturing Overhead: $0.13

Fixed Manufacturing Overhead: $0.24

Total Manufacturing Costs Per Unit: $0.62

An outside supplier has offered to sell Kirsten Corporation all B345 gaskets it requires. If Kirsten Corporation decides to accept the offer and discontinue making B345 gaskets, 25% of above fixed manufacturing overhead costs would be avoided.

Question: Assume that Kirsten Corporation could use the facilities presently devoted to production of B345 gaskets to expand production of another product that would yield an additional contribution margin of $10,000 annually. What is the maximum unit price Kirsten Corporation should be willing to pay the outside supplier for the B345 gasket?

Reference no: EM13789143

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