Question 7.A.19: Going back to Activity 7.17, what is the maximum price that ...
Going back to Activity 7.17 , what is the maximum price that the business concerned would logically be prepared to pay to have the remaining B14s machined by a subcontractor, assuming that no fixed or variable cost would be saved as a result of not doing the machining itself?
Would there be a different maximum if we were considering the B22s?
If the remaining three B14s were subcontracted at no cost, the business would be able to earn a contribution of £15 a unit, which it would not otherwise be able to gain. Therefore, any price up to £15 a unit would be worth paying to a subcontractor to undertake the machining. Naturally, the business would prefer to pay as little as possible, but anything up to £15 would still make it worthwhile subcontracting the machining.
This would not be true of the B22s because they have a different contribution per unit; £11 would be the relevant figure in their case