Bruce Industries manufactures 200,000 components per year. The manufacturing cost of the components was determined as follows:
Direct materials $200,000
Direct labor 320,000
Variable manufacturing overhead 120,000
Fixed manufacturing overhead 160,000
An outside supplier has offered to sell the component for $3.40. If Bruce purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $20,000.
Requirements:
-If Bruce purchases the component from the supplier in-stead of manufacturing it, the effect on income would be
-What is the maximum price Bruce would be willing to pay the outside supplier?