What is the maximum price that gray should be willing to pay

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Reference no: EM133349517

Question: Gray Inc. manufactures 100,000 units of part A-996 annually, which it uses in one of its products. The controller has collected the following cost data related to the part. Materials P 40,000 Direct labor 90,000 Variable overhead 80,000 Fixed overhead 180,000 Total costs P 390,000 Neon Company offers to supply a functionally equivalent part for P3.10 per unit. If Gray Inc. accepts the offer, it will be able to rent some of the facilities it devotes to making the part to another company for P20,000 annually and will also be able to reduce its fixed overhead costs by about P50,000.

Required:

1. Should Gray accept the offer?

2. What is the maximum price that Gray should be willing to pay for the part-the price that would give it the same income it would have if it continued making it?

3. Expected use of the part might vary from the 100,000 normal level. At what annual unit volume will Gray earn the same income making the part as it would buying it?

Reference no: EM133349517

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