Aholt Corporation Makes 40, 000 Units Per Year of a Part

question 163

Multiple Choice

Aholt Corporation makes 40, 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 $46.20 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 $264, 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, $21.90 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 40, 000 units required each year?

• A)$6.60 per unit
• B)$44.60 per unit
• C)$59.90 per unit
• D)$66.50 per unit

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Definitions:

Hormones

Chemical messengers produced by the endocrine glands that regulate various bodily functions and behaviors.

Sympathetic Nervous System

A part of the autonomic nervous system that prepares the body for physical activity by accelerating the heart rate, constricting blood vessels, and raising blood pressure.

Bodily Arousal

A state of physiological activation or readiness, often associated with emotions, stress, or excitement, involving changes in heart rate, blood pressure, and respiration.

Autonomic Nervous System

The component of the nervous system that regulates involuntary bodily functions, including respiration, cardiac rhythm, and digestion activities.