Question
Sutherland manufactures and sells 60,000 laser printers each month. A principal component part in each printer is its paper feed drive. Sutherland's plant currently has
Sutherland manufactures and sells 60,000 laser printers each month. A principal component part in each printer is its paper feed drive. Sutherland's plant currently has the monthly capacity to produce 80,000 drives. The unit costs of manufacturing these drives (up to 80,000 per month) are as follows.
Variable cost per unit:
Direct materials$25
Direct labor20
Variable MOH5
Fixed costs per month:
Fixed manufacturing cost$600,000
Desk-Mate Printers has offered to buy 15,000 paper feed drives from Sutherland to be used in its own printers.
a.What is the average unit cost of manufacturing each paper feed drive assuming that Sutherland manufactures only enough drives for its own laser printers.
b.What is the incremental unit cost of producing an additional paper feed drive.
c.What is the per-unit sales price that Sutherland should charge Desk-Mate to earn $150,000 in monthly pretax profit on the sale of drives to Desk-Mate.
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