Fair Engineering Company manufactures part QE767 used in several of its engine models. Monthly production costs for 10,000 units are as follows:
It is estimated that 20% of the fixed support costs assigned to part QE767 will no longer be incurred if the company purchases the part from the outside supplier. Fair Engineering Company has the option of purchasing the part from an outside supplier at $16 per unit.
-The maximum price that Fair Engineering Company should be willing to pay the outside supplier for each unit of part QE767 is:
A)$10.
B)$15.
C)$15.80.
D)$16.

Question

Fair Engineering Company manufactures part QE767 used in several of its engine models. Monthly production costs for 10,000 units are as follows:
 It is estimated that 20% of the fixed support costs assigned to part QE767 will no longer be incurred if the company purchases the part from the outside supplier. Fair Engineering Company has the option of purchasing the part from an outside supplier at $16 per unit.
-The maximum price that Fair Engineering Company should be willing to pay the outside supplier for each unit of part QE767 is:
A)$10. 
B)$15. 
C)$15.80. 
D)$16.

Quizplus · Accepted Answer

A)Avoidable costs $158,000 / 10,000 units = $15.80 per part

Fair Engineering Company Manufactures Part QE767 Used in Several of Its