Assume that Perry's fixed costs remain unchanged if the seats are purchased from an outside supplier. In order to operate more profitably by buying the seats rather than manufacturing them, Perry must negotiate a price per unit from the outside supplier that is less than:
A) $27.
B) $25.
C) $22.
D) $16.

Question

Quizplus · Accepted Answer

In order for Perry to operate more profitably by buying the seats rather than manufacturing them, the price per unit from the outside supplier must be less than the cost per unit of manufacturing the seats in-house.

We can calculate this cost per unit as follows:

Cost per unit = (Fixed costs + Variable costs per unit) / Number of units

Plugging in the given values:

Cost per unit = ($18,000 + $7,000) / 1,000 = $25

Therefore, the supplier's price per unit must be less than $25 for Perry to operate more profitably.

Out of the given choices, only option C) $22 is less than $25, making it the best choice.

Assume That Perry's Fixed Costs Remain Unchanged If the Seats