What is the highest price that talboe could pay

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Reference no: EM131989124

Problem

Talboe Company makes wheels which it uses in the production of children's wagons. Talboe's costs to produce 230,000 wheels annually are as follows:

Direct material $ 46,000
Direct labor 69,000
Variable manufacturing overhead 34,500
Fixed manufacturing overhead 73,000
Total $222,500

An outside supplier has offered to sell Talboe similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $28,000 of annual fixed manufacturing overhead would be avoided and the facilities now being used to make the wheels would be rented to another company for $70,900 per year.

What is the highest price that Talboe could pay the outside supplier for each wheel and still be economically indifferent between making or buying the wheels?

Reference no: EM131989124

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