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Exercise 6-11A Establishing price for an outsourcing decision LO 6-3

Rimes 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 (14,800 Units $20)	$	296,000
Labor (14,800 Units $14)		207,200
Depreciation on manufacturing equipment*		36,000
Salary of supervisor of engine production		72,000
Rental cost of equipment used to make engines		11,000
Allocated portion of corporate-level facility-sustaining costs		81,000
Total cost to make 14,800 engines	$	703,200

*The equipment has a book value of $99,000 but its market value is zero.

Required:

a.	Determine the maximum price per unit that Rimes would be willing to pay for the engines.(Round your answer to 2 decimal places.)

b.	Determine the maximum price per unit that Rimes would be willing to pay for the engines, if production increased to 18,950 units?(Round your answer to 2 decimal places.)