Question

Kirsten Corporation makes 100,000 units per year of a part called a B345 gasket for use in one of its products. Data concerning the unit production costs of the B345 gasket follow:

direct materials .... 0.15

direct labor .... 0.10

variable manufacturing overhead ..... 0.13

fixed manufacturing overhead .... 0.24

total manufacturing cost per unit .... 0.62

An outside supplier has offered to sell Kirsten Corporation all of the B345 gaskets it requires. If Kirsten Corporation decided to discontinue making the B345 gaskets, 25% of the above fixed manufacturing overhead costs could be avoided. Assume that direct labor is a variable cost, and that Kristen corporation has no alternative use for the facilities for facilities presently devoted to production of the B345 gaskets.

Required:

At what price per unit would Kristen corporation be indifferent between making the gasket and buying the gasket from the outside supplier? Round your answer to two decimal places.

Answer 1

Calculate indifferent Price

Direct material	0.15
Direct labor	0.10
Variable manufacturing overhead	0.13
Fixed manufacturing overhead (0.24*.25)	0.06
Indifferent price	0.44