EFG Company produces components ABC for use in one of its electronic gadgets. The normal annual production for the item is 100,000 units. The cost per 100 unit lot of the part is as follows: Direct materials P 520 Direct labor 200 Manufacturing overhead: Variable 240 Fixed 320 Total manufacturing costs per 100 units P 1,280 ABC Inc. has offered to sell EFG all 100,000 units it will need during the coming year for P1,200 per 100 units. If EFG accepts the offer from ABC, the facilities used to manufacture Component ABC could be used in the production of component EFG. This change would save EFG P180,000 in relevant costs. In Addition, a P200,000 cost item included in fixed overhead is specifically related to part ABC and would be eliminated. What is the maximum price that EFG would pay for the component?

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Cost of own production PARTICULARS FORMULA AMOUNT direc... View the full answer