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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.

Proposal is got from outside contractor who will produce and ship 1,000 generators per month directly to Redi-Watt customers as orders are got from Redi-Watt's sales force. Redi-Watt's fixed marketing costs would be unaffected but its variable marketing costs would be cut by 20% (to $400 per unit) for these 1,000 units manufactured by contractor. Redi-Watt's plant would operate at two-thirds of its normal level, and fixed producing costs would be cut by 30% to $2,520,000. What in house costs must be used to compare with  proposal received from contractor? Must proposal be accepted for price (paid to the contractor) of $4,250 per unit?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M918813

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