Demron Is in Serious Negotiations to Purchase a Welding Machine

Multiple Choice

Demron is in serious negotiations to purchase a welding machine that will enable them to perform their own welding. They currently have their welding outsourced at a cost of $1.50 per weld and a fixed cost of $45,000. Their marketing team feels that they can sustain an annual sales volume sufficient to require 35,000 welds. If a fancy new welding rig costs $13,500 what is the maximum variable cost per weld that Demron should be willing to pay in order to bring this process in-house?

A) $3.00 per weld
B) $2.40 per weld
C) $2.00 per weld
D) $1.45 per weld