Assume that, as in requirement 7 a proposal is received from an outside supplier who will make and ship high-style pens directly to the Clas Company’s
Assume that, as in requirement 7 a proposal is received from an outside supplier who will make and ship high-style pens directly to the Clas Company’s customers as sales orders are forwarded from Class’s sales staff. If the supplier’s offer is accepted, the present plant facilities will be used to make a new pen whose unit costs will be:
Variable manufacturing costs $5.00
Fixed manufacturing costs 1.00
Variable Marketing costs 2.00
Fixed marketing costs for the new pen .50
Total fixed manufacturing overhead will be unchanged from the original level given at the beginning of the problem. Fixed marketing costs for the new pens are over and above the fixed marketing costs incurred for the marketing the high-style pens at the beginning of the problem. The new pen will sell for $9. The minimum desired operating income on the two pens taken together is $50,000 per year. What is the maximim purchase cost per unit that the Class Company should be willing to pay for subcontracting the production of the high-style pens.
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