Question

I cannot figure out what I've done wrong. I cannot get the answer that they say is correct.

I took the variable cost of 68,000/23,000 units to come up with $2.96 variable cost per unit. Then I calculated indifference point:

$2.96 x 23,000 units + 40,000 fixed cost = X x 23,000 units + 20,000

68,080 + 20,000/23,000 = $3.83

Where have I gone wrong?  

Thanks

Part P40 is a part used in the production of air conditioners at Jackson Corporation. The following costs and data relate to the production of Part P40:

Number of units	23,000
Fixed costs	$40,000
Variable costs	$68,000
Total cost to produce	$108,000

Jackson Corporation can purchase the part from an outside supplier for $4.38 per unit. If they purchase from the outside supplier, 50% of the fixed costs would be avoided. If Jackson Corp buys the part, what is the most Jackson Corp can spend per unit so that operating income is equal to $97.000? (Round the final answer to the nearest cent.)

A. $4.22

B. $1.03

C. $3.35

D. $2.48

Answer 1

Ans-Purchase price= $4.38 per unit

if Jackson corporation purchase from the outside supplier then the most Jackson Corp can spend per units is:

Purchase Price (23,000 units *$4.38)	$100,740
Add: Fixed Cost (50% of the fixed cost would be avoided,so $40,000/2)	$20,000
Total Cost to purchase	$120,740
Less: Desired Profit	$97,000
Operating Income	$23,740
Price per unit ($23,740/23,000)	$1.03

Jackson Corp can spend (B). $1.03 per unit so that operating income is equal to $97,000.

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