Reference no: EM132709873

Ethel Company produces and sells a product with the following unit cost:

Prime costs ` P10

Variable indirect manufacturing costs 6

Fixed indirect manufacturing costs 4

Variable manufacturing costs 8

Fixed marketing costs 3

Total unit costs P 31

The company is considering whether to continue producing the product or simply buy it from outside supplier. It has found a supplier which can produce the product per the company's specifications.

Problem 1: If the company buys the product, variable marketing costs would be reduced by 60% but fixed marketing costs would remain the same. What is the maximum unit price that the company would be willing to pay the supplier without decreasing its operating income?

a. P20.80

b. P19.20

c. P31

d. P24.