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.
Suppose that idle facilities would be used to manufacture 800 modified generators per month for use in martime service. These altered units could be sold for $9,000 each, where as costs of producing would be $5,500 per unit for variable manufacturing expense. Variable marketing costs would be= $1,000 per unit. Fixed marketing and producing costs would remain unaltered. Determine maximum purchase price per unit that Redi-Watt must be willing to pay to outside contractor? Must proposal be accepted for price of $4,250 per unit to contractor?