Question

LPR Company makes 20.000 units per year of a component part that it uses in the products it manufactures. The unit cost of this component part is given below: direct naterials direct labor variable overhead fixed overhead $26.24 31.79 14.63 11.25 An outside supplier has offered to sell LPR Company 20,000 units of this part for $82.66 per unit. IF LPR 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 earned on this other product would be 596,000 per year. If LPR Company accepts the outside supplier's offer. 40% of the fixed overhead cost being applied to the part would be eliminated. The remaining Gax would continue to be incurred and would be allocated to LPR Company's remaining products. The selling price per unit charged by the outside supplier that would make LPR Company economically indifferent between making and buying the part would be equal to: $82.66 O $77.46 O $84.21 O $79.41 O $83.91 O $77.16 O $81.96 O $72.66 O none of the above choices are correct

Answer 1

Calculate selling price

Direct material	26.24
Direct labor	31.79
Variable overhead	14.63
Fixed overhead (11.25*40%)	4.50
Opportunity Cost (96000/20000)	4.80
Indifferent selling price	81.96

So answer is $81.96