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Question - ABC Co. produces vacuums. An outside supplier has offered to make the 7,000 vacuum motors needed each year. The company provides the following per-unit cost information for vacuum motors, assuming a production level of 7,000:
Direct materials: $39
Direct labor: $12
Variable manufacturing overhead: $5
Factory Supervisor Salary: $33
Depreciation of Special Equipment: $3
Allocated General Overhead: $13
Additional information: ABC will keep the factory supervisor regardless of whether vacuum motor production is outsourced. If vacuum motor production is outsourced, the special equipment will be discarded and the allocated general overhead can be reduced by 30%.
Required - What is the maximum price per motor that this company should be willing to pay to purchase the vacuum motors from the outside supplier?
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