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

question 172

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.
What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 70,000 units required each year? (Round your intermediate calculations to 2 decimal places.)

• A) $50.60 per unit
• B) $3.90 per unit
• C) $58.80 per unit
• D) $54.90 per unit

Understand how changes in the price of goods and their complements or substitutes affect demand.

Comprehend the concept of inferior and normal goods and how income changes impact demand.

Recognize how various factors such as income, prices of related goods, and changes in tastes or population can shift the demand curve.

Grasp the relationship between the price of goods and the quantity demanded according to the law of demand.

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Definitions:

Earth Friendly

Describes practices, products, or technologies that are not harmful to the environment and often contribute to sustainability.

Self-grounding

A technique used to prevent electrostatic discharge (ESD) by touching a grounded object before handling sensitive electronic components.

Shock

A sudden and intense disturbance or impact, which can be physical, electrical, or emotional in nature.

Surge Strip

A device designed to protect electronic equipment from voltage spikes by blocking or shorting to ground any unwanted voltages above a safe threshold.