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Unformatted text preview: 1513 1527 (1) (a) Variable costs to make sets of hands amount to $14 per set : Costs to buy (3,000 sets of hands @ $1 7) $51,000 Variable costs to make (3,000 @ $14) (42,000) Minimum amount of avoidable fixed overhead $ 9,000 $9,000 or more of the $13,000 of fixed overhead costs would have to be avoidable for the company to prefer to buy the 3,000 sets of hands from an outside supplier at $1 7 per set. (b) Costs avoidable by not making 3,000 sets of hands: Variable manufacturing (3,000 @ $14) $42,000 Fixed overhead (given) 6,000 Maximum total purchase price for 4,000 sets of hands $48,000 $48,000 Maximum price per set = = $16 3,000 The company would prefer to purchase sets of hands from an outside supplier only if the price per set is less than $16. (c) Letting x be the number of sets of hands needed, the cost of buying is given by the cost equation: Cost of buying = $24x The cost of making which can be avoided is given by the cost equation: Cost of making = $14x + $3,000 These costs are equal when: $24x = $14x + $3,000 $10x = $3,000 x = 300 sets of hands The costs of buying will be less than the costs of making (which can be avoided) only if less than 300 sets of hands are needed. ...
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- Fall '07