XYZ Inc. manufactures a component D12, and two main products F45 and P67. The following details relate to each of these items:

D12 D45 P67

Selling price? 146 159

Material cost 10 15 26

Component D12 (bought-in price) ? 25 25

Direct labor 5 10 15

Variable overheads 6 12 18

Total variable cost per unit 21 62 84

Fixed overhead costs: P per annum P per annum P per annum

Avoidable* 9,000.00 18,000.00 40,000.00

Non-avoidable 36,000.00 72,000.00 160,000.00

Total 45,000.00 90,000.00 200,000.00

* The avoidable fixed costs are product-specific fixed costs that would be avoided if the product or component were to be discontinued.

1. Assuming that the annual demand for component D12 is 5,000 units and that XYZ Inc. has sufficient capacity to make the component itself, the maximum price that should be paid to an external supplier for 5,000 components per year is?

2. Assuming that component D12 is bought from an external supplier for P25.00 per unit, the number of units of product F45 that must be sold to cover its own costs without contributing to XYZ Inc.’s non-avoidable fixed costs is closest to?

Answer rating: 100% (QA)

Question 1A Maximum price payable to the external supplier for D12 relevant cost of producing it int... View the full answer