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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.

Redi-Watt has the opportunity to enter foreign market which is very price competitive. Attraction to foreign market is that demand is greatest when demand in domestic market is low, hence idle production facilities could be used without affecting domestic business. Order for 1,000 units is being sought at below normal price in order to enter this market. Shipping costs for units will amount to $750 per unit, where as total costs of obtaining contract (marketing costs) will be $40,000. Domestic business would be unaffected by this order. Determine minimum unit price Redi-Watt must consider for this order of 1,000 units.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M918808

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