Sutherland manufactures and sells 110,000 laser printers each month. A principal

Question

Sutherland manufactures and sells 110,000 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 150,000 drives. The unit costs of manufacturing these drives (up to 150,000 per month) are as follows:



Variable costs per unit:
Direct materials $ 45
Direct labor 25
Variable manufacturing overhead 5
Fixed costs per month:
Fixed manufacturing overhead $ 1,430,000

--------------------------------------------------------------------------------

Desk-Mate Printers has offered to buy 20,000 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. (Omit the "$" sign in your response.)

Average per-unit manufacturing cost $
b. Compute the incremental unit cost of producing an additional paper feed drive. (Omit the "$" sign in your response.)

Incremental unit cost $
c. Compute the per-unit sales price that Sutherland should charge Desk-Mate to earn $500,000 in monthly pretax profit on the sale of drives to Desk-Mate. (Omit the "$" sign in your response.)

Unit sales price $

Explanation / Answer

Hi,

Please find the answers as follows:

Part A:

Average Cost Per Unit = 45 + 25 + 5 +1430000/110000 = 88 per unit

Part B:

Incremental unit cost = 45 + 25 + 5 = 75 per unit (only variable costs are considered in the calculation)

Part C:

Units Sales Price = X

X*20000 = (20000*75 + 500000)

X = 2000000/20000 = 100 per unit

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.