Ahrends Corporation Makes 70,000 Units Per Year of a Part

question 30

Multiple Choice

Ahrends Corporation makes 70,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows: An outside supplier has offered to sell the company all of these parts it needs for $48.50 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $273,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $8.20 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.
How much of the unit product cost of $54.90 is relevant in the decision of whether to make or buy the part? (Round your intermediate calculations to 2 decimal places.)

• A) $37.80 per unit
• B) $46.70 per unit
• C) $54.90 per unit
• D) $19.00 per unit

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Definitions:

Tolerance For Ambiguity

an individual's capacity to remain comfortable and function effectively in situations that are uncertain, complex, or lack clarity.

Social Entrepreneurs

Entrepreneurs who focus on developing businesses and initiatives that aim to address and solve societal and environmental issues.

Socialistic Economies

Economic systems where the means of production, distribution, and exchange are owned or regulated by the community as a whole.

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Economic systems where prices for goods and services are determined by the open market and consumers, with minimal government intervention.