Barker Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows:
Of the fixed factory overhead costs, $60,000 is avoidable.
-Assuming no other use of their facilities, the highest price that Barker should be willing to pay for 5,000 units of the part is
A) $420,000.
B) $280,000.
C) $340,000.
D) $240,000.

Question

Barker Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows:
  Of the fixed factory overhead costs, $60,000 is avoidable.
-Assuming no other use of their facilities, the highest price that Barker should be willing to pay for 5,000 units of the part is
A) $420,000. 
B) $280,000. 
C) $340,000. 
D) $240,000.

Quizplus · Accepted Answer

The highest price Barker should be willing to pay is the cost they would incur if they made the part themselves. If the cost to produce 5,000 units is $340,000, then that is the maximum they should pay to purchase the parts.

Barker Company Produces a Part That Is Used in the Manufacture