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 b. Compute the incremental unit cost of producing an additional paper feed drive

Explanation / Answer

Hi, Please find the answers as follows: Part A: Total Cost =1430000 (Fixed Cost) + (45+25+5)*110000 (Total Variable Cost) = Average Cost = Total Cost/Units Produced = (1430000 + 825000)/110000 = 88 Part B: b) Incremental Cost = 45+25+5 = 75 (Fixed cost is not considered as a part of incremental cost). Thanks.

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