Arches Manufacturing had always made its components in-house. However, Canyonlands Component Works had recently offered to supply one component, DA, at a price of $52 each. Arches uses 12,500 units of component DA each year. The cost per unit of this component is as follows:

Line Item Description	Amount
Direct materials	$25.00
Direct labor	6.25
Variable overhead	15.75
Fixed overhead	7.00
Total	$54.00

Assume that 80% of Arches Manufacturing's fixed overhead for component DA would be eliminated if that component were no longer produced.

3. Conceptual Connection: By what dollar amount would the per-unit relevant fixed cost have to decrease before Arches would be indifferent (i.e., incur the same cost) between "making" versus "purchasing" the component?

Answer rating: 100% (QA)

To determine the dollar amount by which the perunit relevant fixed cost would have to decrease befor... View the full answer