This Little Light, Inc. is a manufacturer of lamps. Little Light makes 40,000 units per year of a part that it uses in the manufacturing of each lamp. At this activity level, the unit production cost is $7.17. Of this amount, $4.71 is for unit variable production costs. The remainder is for fixed production costs and equals $98,400. Little Light has identified an outsider supplier who sells the needed part. If the part is purchased from the outsider supplier, 15% of Little Light's fixed manufacturing costs will be eliminated. Assume Little Light will need 50,000 of the part next year and that the freed up capacity can be rented out to another company for $31,740. At what purchase price will Little Light be economically indifferent between making the part and buying the part?

This Little Light, Inc. is a manufacturer of lamps. Little Light makes 40,000 units per year of a part that it uses in the manufacturing of each lamp. At this activity level, the unit production cost is $7.17. Of this amount, $4.71 is for unit variable production costs. The remainder is for fixed production costs and equals $98,400. Little Light has identified an outsider supplier who sells the needed part. If the part is purchased from the outsider supplier, 15% of Little Light's fixed manufacturing costs will be eliminated. Assume Little Light will need 50,000 of the part next year and that the freed up capacity can be rented out to another company for $31,740. At what purchase price will Little Light be economically indifferent between making the part and buying the part?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 7EB: Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has...

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