Question

Waterway Industries produces 1000 units of a necessary component with the following costs: Direct Materials $42000 Direct Labor 23000 Variable Overhead 8000 Fixed Overhead 10000 Waterway Industries could avoid $6000 in fixed overhead costs if it acquires the components externally. If cost minimization is the major consideration and the company would prefer to buy the components, what is the maximum external price that Waterway Industries would accept to acquire the 1000 units externally? $73000 $79000 $77000 $75000

Answer 1

The maximum external price that Waterway Industries would accept to acquire the 1000 units externally is $77000.

Step-by-step explanation:

The maximum external price must be equal to the cost of making the components internally taking into account thee avoidable fixed costs of getting an outside supplier.

Determination of the maximum external price :

Direct Materials $42,000

Direct Labor $23,000

Variable Overhead $8,000

Fixed Overhead ($10,000 - $6,000) $4,000

Maximum external price $77000