Harmony is currently producing 100 units of a necessary component part by incurring $60,000 in direct materials, $12,500 in direct labor, $22,500 in variable overhead, and $15,000 in fixed overhead. If Harmony purchases the component externally, $10,000 of fixed costs can be avoided. What is the external price for 100 units at which the company is indifferent between buying and selling?

Question

Business

Moses Price

23 July, 12:44

Harmony is currently producing 100 units of a necessary component part by incurring $60,000 in direct materials, $12,500 in direct labor, $22,500 in variable overhead, and $15,000 in fixed overhead. If Harmony purchases the component externally, $10,000 of fixed costs can be avoided. What is the external price for 100 units at which the company is indifferent between buying and selling?

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Answers (1)

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Jeremiah Ali · Answer 1

The maximum price to pay is = $1,045

Explanation:

Giving the following information:

Harmony is currently producing 100 units of a necessary part by incurring $60,000 in direct materials, $12,500 in direct labor, $22,500 in variable overhead, and $15,000 in fixed overhead. If Harmony purchases the component externally, $10,000 of fixed costs can be avoided.

Unitary cost = (60,000 + 12,000 + 22,500 + 10,000) / 100 = $1,045

The maximum price to pay is = $1,045