Bonita Industries has the following costs when producing 100

Bonita Industries has the following costs when producing 100000 units:

Variable costs $600000

Fixed costs 900000

An outside supplier is interested in producing the item for Bonita. If the item is produced outside, Sandusky could use the released production facilities to make another item that would generate $230000 of net income. At what unit price would Bonita accept the outside supplier’s offer if Bonita wanted to increase net income by $200000?

Entry field with incorrect answer

$8.30

$6.30

$5.70

$10.30

Solution

Answer is $ 6.30 Explanation: Total savings due to purchase from outside supplier: Savings in variable cost 600000 Add: Increase in contribution from new product 230000 Total Savings    830000 Less: Desired increase in income 200000 maximum amount to be paid to supplier 630000 Divide: Number of units 100000 Maximum unit price 6.3