The Talbot Corporation Makes Wheels That It Uses in the Production

question 54

Multiple Choice

The Talbot Corporation makes wheels that it uses in the production of bicycles.Talbot's costs to produce 100, 000 wheels annually are: An outside supplier has offered to sell Talbot similar wheels for $1.25 per wheel.If the wheels are purchased from the outside supplier, $15, 000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $45, 000 per year.Direct labor is a variable cost. At what purchase price for the wheels would Talbot be indifferent between making or buying the wheels?

• A)$1.70 per wheel
• B)$1.60 per wheel
• C)$1.55 per wheel
• D)$1.15 per wheel