question archive The following are company's monthly unit costs to manufacture and market a particular product
The following are company's monthly unit costs to manufacture and market a particular product
Subject:AccountingPrice:2.84 Bought3
The following are company's monthly unit costs to manufacture and market a particular product. Manufacturing costs: Direct materials P2.00 Direct labor 2.40 Variable indirect 1.60 Fixed indirect 1.00 Marketing costs: Direct materials P2.50 Direct labor 1.50 The company must decide to continue making the product or buy it from an outside supplier. The supplier has offered to make the product at a level of quality that the company prescribes. Fixed marketing costs would be unaffected, but variable marketing costs would continue at 30% if the company were to accept the proposal. What is the maximum amount per unit that the company can pay the supplier without decreasing its operating income?
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Answer: The maximum amount per unit the company can pay the supplier without decreasing operating income is $7.75
Explanation:
Calculation of relevant costs of manufacturing each unit:
Direct Materials 2
Direct Labor 2.4
Variable Indirect 1.6
Variable Marketing (2.5*70%) 1.75
Maximum Price = 2 + 2.4 + 1.6 + 1.75 = 7.75
