16 Mar Establishing a price for an outsourcing decisionPi
Establishing a price for an outsourcing decisionPierce Corporation makes and sells skateboards. Pierce currently makes the 60,000 wheels used annually in its skateboards but has an opportunity to purchase the wheels from a reliable manufacturer.The costs of making the wheels follow.Annual Costs Associated with Manufacturing Skateboard WheelsMaterials (60,000 units × $5)$300,000Labor (60,000 units × $3)180,000Depreciation on manufacturing equipment*24,000Salary of wheel production supervisor65,000Rental cost of equipment used to make wheels55,000Allocated portion of corporate-level facility-sustaining costs40,000Total cost to make 60,000 wheels$664,000Requireda. Determine the maximum price per unit that Pierce would be willing to pay for the wheels.b. Would the price computed in Requirement a change if production were increased to 80,000 units?Support your answer with appropriate computations.
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