Blue Ridge Bicycles uses a standard part in the manufacture of several of its bikes. The cost of producing 45,000 parts is $142,000, which includes fixed costs of $70,000 and variable costs of $72,000. By outsourcing the part, the company can avoid 30% of the fixed costs. If Blue Ridge Bicycles buys the part, what is the most Blue Ridge Bicycles can spend per unit so that operating income equals the operating income from making the part?

$2.07 per unit

Explanation:

Currently 45,000 units produced

total cost= $72,000 (variable) + $70,000 (fixed) = $142,000

average total cost per unit = $142,000 / 45,000 units = $3.16 per unit

if the company outsources the production of the part:

total cost = $72,000 + ($70,000 x 30%) = $72,000 + $21,000 = $93,000

average total cost per unit = $93,000 / 45,000 units = $2.07 per unit

if Blue Ridge spends more than $2.07 per unit, it will be spending more money by outsourcing the part than by producing it.

e.g. $2.10 per unit

total costs = ($2.10 x 45,000) + ($70,000 x 70%) = $94,500 + $49,000 = $143,500 which is higher than $142,000.

answer; i believe the correct answer is (business necessity defense;

and whats your questoin