Answer:
1. 72000 units.
2. $19.
Explanation:
Solution:
Part 1:
Let's Sort out the data given:
Monthly Cost Fixed = $240,000
Fixed Cost unavoidable = 40% x 240,000
Fixed Cost unavoidable = $96,000
Now,
Avoidable Fixed Cost will be = $240,000 - $96,000
Avoidable Fixed Cost will be = $144,000
It means that, if the industries obtain products from the outside supplier, it will save or avoid fixed cost of $144,000 per month.
Now, we also given that,
Variable Production Cost = $16 per unit
Purchase Price per unit (Outsider) = $18 per unit
Increment in Price per unit = $18 - $16 = $2
Hence,
It will cost the industry an extra of $2 per unit.
Now, we can calculate the required monthly usage at which it will be indifferent between purchasing and making part MR24.
Break Even Monthly Usage = Avoidable Fixed Cost/ Incremental Price per unit.
Break Even Monthly Usage = $144,000/$2
Break Even Monthly Usage = 72000 units.
Hence, Monthly usage at which it will be indifferent between purchasing and making part MR24 = 72000 units.
Part 2:
Monthly usage as given = 48000 units on which it can avoid the fixed cost of $144,000
Avoidable Monthly fixed cost = $144,000
So, now, we can calculate the avoidable fixed cost per unit as well.
Avoidable Fixed Cost Per unit = $144,000/48000
Avoidable Fixed Cost Per unit = $3
We also know,
Variable Production cost per unit = $16
Avoidable Fixed cost per unit = $3
So, we can see the maximum purchase price in order to avoid monthly fixed cost.
Maximum Purchase price per unit = $16 + $3 =$19
It means, $19 is the maximum purchase price, if the industry is approaching the outsider for the monthly usage of 48000 units. It will benefit if the price is less than $19.
