Langdon Company Langdon Company manufactures a lawn mower. Currently Langdon Company manufactures the engines for the lawn mowers but is considering an offer from Eastern Engines to supply the engines.

The factory accountant at Langdon Company advises that the cost of making the engines include: direct materials costs of $110, direct labor costs of $80, and variable overhead of $20. The accountant also advises that fixed manufacturing overhead of $25 is allocated to each engine but fixed manufacturing overhead is not avoidable if internal production is stopped.

a) What is the maximum price that Langdon Company should accept from the Eastern Engine for each engine?

b) The factory accountant has reconsidered and now believes that some of the fixed manufacturing overhead could be saved if engine production is stopped. The space now used at Langdon Company is rented at a cost of $20,000, and that cost could be avoided if engine production is stopped. If Langdon Company discontinues production of the engines it will transfer the supervisor of the engine unit to another manufacturing unit where the supervisor position is open. The engine supervisor's salary is $60,000 and if moved the supervisor's salary will not change. However, the salary that would have been paid to an outsider for the open position is $50,000. If the contract is to supply 2,000 engines what is the maximum price that Langdon Company should accept from Eastern Engine for each engine?