Question

Sutherland manufactures and sells 50,000 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 costs per unit: Direct materials $ 23 Direct labor 15 Variable manufacturing overhead 2 Fixed costs per month: Fixed manufacturing overhead $ 1,500,000 Desk-Mate Printers has offered to buy 10,000 paper feed drives from Sutherland to be used in its own printers. a. Compute the average unit cost of manufacturing each paper feed drive assuming that Sutherland manufactures only enough drives for its own laser printers. b. Compute the incremental unit cost of producing an additional paper feed drive. c. Compute the per-unit sales price that Sutherland should charge Desk-Mate to earn $110,000 in monthly pretax profit on the sale of drives to Desk-Mate.

Answer 1

	Capacity	80000
	Production & Sales	50000
	Variable Cost PU:
	Direct Material	23.00
	Direct Labor	15.00
	Variable M OH	2.00
	Total	40.00
	Fixed M. OH:	1500000
	Production	50,000
	Per Unit FOH	30.00
A	Average Unit Cost:
	Variable Cost PU:
	Direct Material	23.00
	Direct Labor	15.00
	Variable M OH	2.00
	Per Unit FOH	30.00
	Total Costs	70.00
B	Incremental Unit Cost:
	Since Idle Capacity is available; Variable Cost is the Incremental Cost
	Variable Cost PU:
	Direct Material	23.00
	Direct Labor	15.00
	Variable M OH	2.00
	Total Incremental Cost	40.00
C	Computation of Per Unit Sales Price:
	Desired Profit	110000		Current Units	50,000
	Fixed Cost	1500000		Offer	10000
	Variable Cost	2400000	(60000*40)	Total Units	60,000
	Total Desired Revenue	4010000
	Total Units	60000
	Per Unit Sales Price	66.83