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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)

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olive corp currently makes 20-000 sub components a year in one of its.docx

  • 1. 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)