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 questions refer only to data given above. Unless otherwise stated, suppose there is no connection between situations explained in each of questions, 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?