Question

In: Accounting

Munoz Company makes and sells lawn mowers for which it currentlymakes the engines. It has...

Munoz Company makes and sells lawn mowers for which it currently makes the engines. It has an opportunity to purchase the engines from a reliable manufacturer. The annual costs of making the engines are shown here.

Cost of materials (14,400 Units × $18) $ 259,200

Labor (14,400 Units × $29) 417,600

Depreciation on manufacturing equipment* 40,000

Salary of supervisor of engine production 67,000

Rental cost of equipment used to make engines 16,000

Allocated portion of corporate­level facility­sustaining costs 81,000

Total cost to make 14,400 engines $ 880,800

*The equipment has a book value of $99,000 but its market value is zero.

Required

a. Determine the maximum price per unit that Munoz would be willing to pay for the engines.

b. Determine the maximum price per unit that Munoz would be willing to pay for the engines, if production increased to 18,600 units?

(For all requirements, round your intermediate calculations and final answers to 2 decimal places.)

Solutions

Expert Solution

Part a

Maximum price that could be paid would be sum of material + labor + salary for supervisor + rent divided by number of units = 259200+417600+67000+16000 = $ 759800/14400 = $ 52.76

Part b

Particulars Amount ($)
Material (18600*18) 334800
Labor (18600*29) 539400
Salary 67000
Rent 16000
Total 957200
Number of units 18600
Price per unit $ 51.46

ekkarill92 answered 2 years ago
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