Problem 1

The Mikes Production produces and sells bikes.

Original assumptions:

Current Production: 3,000 bikes

Maximum Capacity: 6,000 bikes

Current selling price per unit: 250

Manufacturing and period costs are as follows:

Manufacturing costs:

DM/unit =$23

DL/unit = $15

VOH/per unit =$12

Total fixed direct MOH: $220,000

Total fixed common MOH: $100,000

Period Costs:

SG&A fixed (common)=$200,000

Variable selling commission per unit=$1 (only for units sold through regular, not special order)

Required:

If Mikes Production decides to outsource (purchase instead of make) 3,000 bikes, what is the maximum purchase price per bike that Mikes Production should pay to be no worse off financially?

Back to the original assumptions. A national sporting goods chain recently submitted a special order for 1,000 bikes. Mikes Production is not operating at capacity and could use the extra business. If special order is 1,000 units, what is the minimum price so that the company is no worse off?

If special order is 4,000 units, what is the minimum price so that the company is no worse off?