MANAGERIAL ACCOUNTING

Amalgamated Widget (AW) makes widgets and gadgets in a fully automated factory. It takes 10 minutes of machine time to make one widget and 6 minutes of machine time to make one gadget. Machine capacity is 10,000 hours per month, and AW is operating at capacity. Manufacturing monthly overhead, all fixed, is $600,000, and is allocated to products on the basis of machine time. Each widget uses $40 of material and sells for $80. Each gadget uses $30 of material and sells for $P.

Q1. For what price P of a gadget would widgets and gadgets have the same gross margin per unit?

Q2. For what price of a gadget would AW be indifferent between widget and gadget production?