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Q1) Generators, Inc. manufactured emergency backup generators for use in large commercial buildings. Costs of manufacturing and marketing generators at company's normal volume of 3,000 units per month are shown.

Costs per Unit for Generators

Unit Manufacturing costs:
Variable Materials $1,000  
Variable Labor 1,500  
Variable Overhead 500  
Fixed Overhead 1,200  
Total Manufacturing Cost   $4,200
Unit Marketing Costs:
Variable 500  
Fixed 1,400  
Total Marketing Cost   1,900
Total Unit Cost:   $6,100

Following problems refer only to data given above. Unless otherwise stated, suppose there is no connection between situations describeed in each of problems, each is to be treated independently. Unless otherwise stated, regular selling price of $7,400 per unit must be assumed.

Suppose that idle facilities would be used to manufacture 800 modified generators per month for use in martime service. These altered units could be sold for $9,000 each, where as costs of producing would be $5,500 per unit for variable manufacturing expense. Variable marketing costs would be= $1,000 per unit. Fixed marketing and producing costs would remain unaltered. Determine maximum purchase price per unit that Redi-Watt must be willing to pay to outside contractor? Must proposal be accepted for price of $4,250 per unit to  contractor?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M918815

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