olive corp currently makes 20,000 sub components a year in one of its factories. the unit costs
produced are:
Direct materials: $12,
Direct labor: 8,
Var. manufacturing overhead: 12,
fixed manuf. overhead: 8,
total unit costs: $40.
An outside supplier has offered to provide olive corp with the 20,000 subcom. at a $36 per unit
price. fixed overhead is not avoidable. what is the maximum price olive corp should pay to the
outside supplier
Solution
Per unit Direct materials $12.00 Direct labor $8.00 Var. manufacturing overhead $12.00 Total
variable cost $32.00 Total fixed cost $8.00 Total unit cost $40.00 Maximum price olive corp
should pay $32.00 (variable cost)