Olson manufactures and sells 5,000 gun cabinets each month. A principal component part in each cabinet is a lock mechanism to keep them secure. Olson’s plant currently has the monthly capacity to produce 8,000 lock mechanisms. The costs of manufacturing these mechanisms at full capacity are as follows.

Security Cases has offered to buy 3,000 lock mechanisms per month from Olson for use in its fireproof cases. Compute the following.
a. The average unit cost of manufacturing each lock mechanism assuming that Olson manufactures only enough drives for its own gun cabinets.
b. The incremental unit cost of producing one additional lock mechanism.
c. The per-unit sales price that Olson should charge to earn $12,000 in monthly pretax profit on sales made to Security Cases.

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Variable costs per unit: Direct materials...... Direct labor Variable manufacturing overhead Fixed costs per month: Fixed manufacturing overhead $14 12 4 $10,000