What is the highest price that the company could pay the

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A Company makes wheels which it uses in the production of children's wagons. The company's costs to produce 190,000 wheels annually are as follows:

Direct material $ 38,000
Direct labor 57,000
Variable manufacturing overhead 28,500
Fixed manufacturing overhead 67,000

Total $190,500
An outside supplier has offered to sell the company similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $22,000 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 $52,100 per year.

What is the highest price that the company could pay the outside supplier for each wheel and still be economically indifferent between making or buying the wheels?

Reference no: EM13607044

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