Manal Company requires three units of P1 for every unit of A15 that it produces.

Currently, P1 is made by Manal, with the following per unit costs in a month when 4,000 units were produced:

Variable manufacturing overhead is applied at $1.00 per unit. The other $1.60 of overhead consists of allocated fixed costs. Manal will need 6,000 units of P1 for next year’s production.
Lamitta Corporation has offered to supply 6,000 units of P1 at a price of $7.00 per unit. If Manal accepts the offer, all of the variable costs and $1,200 of the fixed costs will be avoided. Should Manal Company accept the offer from Lamitta Corporation?
Requirements 1. Which approach to pricing should Rouse Builders emphasize? Why?
2. Will Rouse Builders be able to achieve its target profit levels?
3. Bathrooms and kitchens are typically the most important selling features of a home. Rouse Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost $22,000 per home but would enable Rouse Builders to increase the selling prices by $38,500 per home. (Kitchen and bathroom upgrades typically add about 175% of their cost to the value of any home.) If Rouse Builders makes the upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner?

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Direct materials Direct labor Manufacturing overhead Total $4.00 1.50 2.60 $8.10