Arches Manufacturing had always made its components in-house. However, Canyonlands Component Works had recently offered...
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Accounting
Arches Manufacturing had always made its components in-house. However, Canyonlands Component Works had recently offered to supply one component, DA, at a price of $52 each. Arches uses 12,500 units of component DA each year. The cost per unit of this component is as follows:
| Line Item Description | Amount |
|---|---|
| Direct materials | $25.00 |
| Direct labor | 6.25 |
| Variable overhead | 15.75 |
| Fixed overhead | 7.00 |
| Total | $54.00 |
Assume that 80% of Arches Manufacturing's fixed overhead for component DA would be eliminated if that component were no longer produced.
3. Conceptual Connection: By what dollar amount would the per-unit relevant fixed cost have to decrease before Arches would be indifferent (i.e., incur the same cost) between "making" versus "purchasing" the component? fill in the blank 1 of 1$
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