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Harmony is currently producing 100 units of a necessary component part by incurring $60,000 in direct materials, $12,500 in direct labor, $22,500 in variable overhead, and $15,000 in fixed overhead. If Harmony purchases the component externally, $10,000 of fixed costs can be avoided. What is the external price for 100 units at which the company is indifferent between buying and selling?

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Answer:

The maximum price to pay is= $1,045

Explanation:

Giving the following information:

Harmony is currently producing 100 units of a necessary part by incurring $60,000 in direct materials, $12,500 in direct labor, $22,500 in variable overhead, and $15,000 in fixed overhead. If Harmony purchases the component externally, $10,000 of fixed costs can be avoided.

Unitary cost= (60,000 + 12,000 + 22,500 + 10,000)/100= $1,045

The maximum price to pay is= $1,045

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