Talboe Company makes wheels which it uses in the production of children's wagons. Talboe's costs to produce 200,000 wheels annually are as follows: An outside supplier has offered to sell Talboe similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $25,000 of annual fixed manufacturing overhead would be avoided and the facilities now being used to make the wheels would be rented to another company for $55,000 per year.
-What is the highest price that Talboe could pay the outside supplier for each wheel and still be economically indifferent between making or buying the wheels?
A)$0.95
B)$1.15
C)$1.00
D)$1.05

Question

Talboe Company makes wheels which it uses in the production of children's wagons. Talboe's costs to produce 200,000 wheels annually are as follows:  An outside supplier has offered to sell Talboe similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $25,000 of annual fixed manufacturing overhead would be avoided and the facilities now being used to make the wheels would be rented to another company for $55,000 per year.
-What is the highest price that Talboe could pay the outside supplier for each wheel and still be economically indifferent between making or buying the wheels?
A)$0.95 
B)$1.15 
C)$1.00 
D)$1.05

Quizplus · Accepted Answer

The Answer of Talboe Company makes wheels which it uses in the production of children's wagons. Talboe's costs to produce 200,000 wheels annually are as follows:  An outside supplier has offered to sell Talboe similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $25,000 of annual fixed manufacturing overhead would be avoided and the facilities now being used to make the wheels would be rented to another company for $55,000 per year.
-What is the highest price that Talboe could pay the outside supplier for each wheel and still be economically indifferent between making or buying the wheels?
A)$0.95 
B)$1.15 
C)$1.00 
D)$1.05

Talboe Company Makes Wheels Which It Uses in the Production