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9 Perez Company makes and sells lawn mowers for which it currently makes the engines. It has an opportunity to purchase the engines from a
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Perez Company 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. Cost of materials (14,100 Units * $20) Labor (14,100 Units X $30) Depreciation on manufacturing equipment* Salary of supervisor of engine production Rental cost of equipment used to make engines Allocated portion of corporate-level facility-sustaining costs Total cost to make 14,100 engines $ 282,000 423,000 24,000 65,000 10,000 84,000 $ 888,000 * The equipment has a book value of $97,000 but its market value is zero. Required a. Determine the maximum price per unit that Perez would be willing to pay for the engines (i.e. where the cost would be the same and management would be "indifferent" between making and buying on a quantitative basis). b. Determine the maximum price per unit that Perez would be willing to pay for the engines, if production increased to 18,300 units (assuming the same indifference as defined in part "a"). (Zeigler Note: For all requirements, Round your answers to 2 decimal places.) a. Maximum price per unit b. Maximum price per unitStep by Step Solution
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