Burns Industries currently manufactures and sells 26,000 power saws per month, a

Question

Burns Industries currently manufactures and sells 26,000 power saws per month, although it has the capacity to produce 41,000 units per month. At the 26,000-unit-per-month level of production, the per-unit cost is $77, consisting of $46 in variable costs and $31 in fixed costs. Burns sells its saws to retail stores for $86 each. Allen Distributors has offered to purchase 5,600 saws per month at a reduced price. Burns can manufacture these additional units with no change in its present level of fixed manufacturing costs.

Explanation / Answer

fixed cost = 26000 * 31 = 806000

variablecost before allen order = 26000 * 46 = 1196000

totalcost = 2002000

profit = 26000 * 86 - 2002000 = 234000

burns should accpet the order if profit is greater than or equalto 234000

varibale cost = 31600 * 46 = 1453600

totalcost = 2259600

234000 = 31600 *x - 2259600

x= 78.91

burns should accept the order onlyif the price is greater than 78.91

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