Easy Cut Inc. makes and sells lawn mowers for which it currently makes the engines. It has an opportunity to purchase the engines from a reliable manufacturer. The annual costs of making the engines are shown here.

Required:

a. Determine the maximum price per unit that Easy Cut would be willing to pay for the engines.

b. Would the price computed in Requirement a change if production increased to 25,000 units? Support your answer with appropriate computations.

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Cost of materials (20,000 units x $20) Labor (20,000 units X $25) $ 400,000 500,000 Depreciation on manufacturing equipment* 45,000 Salary of supervisor of engine production 180,000 Rental cost of equipment used to make engines 120,000 Allocated portion of corporate-level facility-sustaining costs 45,000 Total cost to make 20,000 engines $1,290,000