Managerial Accounting

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Albacore Co.: Maximum Price per Unit for Make vs. Buy Decision


Albacore Co. (AC) uses 5,000 molded parts in their production of finished goods. AC can buy the parts pre-molded from a vendor with a strong reputation for quality and reliability or they can make them for the following costs per unit:

Unit cost:
Direct Materials \$20
Direct Labor \$30
Variable Manufacturing Overhead \$45
Fixed Manufacturing Overhead \$30
Total cost per unit \$125

Of the fixed manufacturing overhead, 30% cannot be avoided if they buy the pre-molded materials.

What is the maximum price per pre-molded unit that AC can pay without hurting profits?