Finding out the minimum selling price acceptable to manufacturer.
Generators, Inc. produced emergency backup generators for use in large commercial buildings. The costs of manufacturing and marketing the generators at the company's normal volume of 3,000 units per month are shown.
Costs per Unit for Generators
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Unit Manufacturing costs:
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Variable Materials
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$1,000
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|
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Variable Labor
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1,500
|
|
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Variable Overhead
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500
|
|
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Fixed Overhead
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1,200
|
|
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Total Manufacturing Cost
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$4,200
|
|
Unit Marketing Costs:
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Variable
|
500
|
|
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Fixed
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1,400
|
|
|
Total Marketing Cost
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1,900
|
|
Total Unit Cost:
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$6,100
|
The following questions refer only to the data given above. Unless otherwise stated, assume there is no connection between situations described in each of the questions, each is to be treated independently. Unless otherwise stated, a regular selling price of $7,400 per unit should be assumed.
An inventory of 230 units of an obsolete model remains in the stockroom. Due to changes in technology, these units cannot be sold through regular channels to existing customers, and will soon be valueless. On overseas distributor has expressed an interest in these units if the price is substantially reduced. What is the minimum price that would be acceptable to Redi-Watt in selling these units.