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DZ Company normally produces and sells 60,000 Gizmos each year at a selling price of $32 per unit. The company's unit costs at this level
DZ Company normally produces and sells 60,000 Gizmos each year at a selling price of $32 per unit. The company's unit costs at this level of activity are given below: Direct Materials Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead Variable Selling Expenses Fixed Selling Expenses Total Cost Per Unit $10.00 4.50 2.30 5.00$300,000 total 1.20 3.50 $210,000 total $26.50 Parts a & b are independent. a) Assume that the company has sufficient capacity to produce 90,000 Gizmos each year. A customer in a foreign market wants to purchase 20,000 Gizmos. Import duties on the Gizmos would be $1.70 per unit, and costs for permits and licenses would be $9,000. The only selling costs that would be associated with the order would be $3.20 per unit shipping cost. Compute the per unit break-even price on this order b) An outside manufacturer has offered to produce Gizmos and ship them directly to DZ's customers. If the Company accepts this offer, the facilities that it uses to produce Gizmos would be idle; however, fixed manufacturing overhead costs would be reduced by 75%. Since the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer
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