Reference no: EM132632563

Schmidt Corporation produces a part that is used in the manufacture of one of its products. The costs associated with the production of 10,000 units of this part are as follows:

Direct materials                                 $45,000

Direct labour                                       35,000

Variable factory overhead                       30,000

Fixed factory overhead                          70,000

Total costs                                       $180,000

Of the fixed factory overhead costs, $30,000 is avoidable.

Question 1: Phil Company has offered to sell 10,000 units of the same part to Schmidt Corporation for $18 per unit. Assuming there is no other use for the facilities, Schmidt should

a. make the part, as this would save $3 per unit.

b. buy the part, as this would save $3 per unit.

c. make the part, as this would save $4 per unit.

d. make the part, as this would save $2 per unit.

e. buy the part, as this would save $4 per unit.

Question 2:  Assuming no other use of their facilities, the highest price that Schmidt should be willing to pay for 10,000 units of the part is

a. $210,000.

b. $160,000.

c. $150,000.

d. $220,000.

e. $140,000.