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 parts produced annually 22,000

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 parts produced annually

22,000

Fixed costs

$ 40,000

Variable costs

$ 66,000

Total cost to produce

$ 106,000

Jackson Corporation can purchase the part from an outside supplier for $4.25 per unit. If they purchase from the outside supplier, 50% of the fixed costs would be avoided. If Jackson Corporation buys the part, what is the most Jackson Corporation can spend per unit so that operating income is equal to $97,000?

a. $5.32

b. $3.50

c. $1.93

d. $1.00

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