Response to the following problem:
Lunn 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 (14,100 Units Af- $18) $ 253,800
Labor (14,100 Units Af- $26) 366,600
Depreciation on manufacturing equipment* 26,000
Salary of supervisor of engine production 74,000
Rental cost of equipment used to make engines 22,000
Allocated portion of corporate-level facility-sustaining costs 76,000
Total cost to make 14,100 engines $ 818,400
*The equipment has a book value of $106,000 but its market value is zero.
Questions:
a. Determine the maximum price per unit that Lunn would be willing to pay for the engines. (Do not round your intermediate calculations. Round your answer to 2 decimal places.)
b. Determine the maximum price per unit that Lunn would be willing to pay for the engines, if production increased to 18,350 units? (Round your intermediate calculations and final answer to 2 decimal places. )