Sutherland manufactures and sells 50,000 laser printers each month. A principal

Question

Sutherland manufactures and sells 50,000 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 80,000 drives. The unit costs of manufacturing these drives (up to 80,000 per month) are as follows. Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead 23 15 2 Fixed costs per month: Fixed manufacturing overhead $1,200,000 Desk-Mate Printers has offered to buy 10,000 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. c. Compute the per-unit sales price that Sutherland should charge Desk-Mate to earn $130,000 in monthly pretax profit on the sale of drives to Desk-Mate. a. Average per-unit manufacturing cost b. Incremental unit cost c. Unit sales price

Explanation / Answer

(a) Calcuation of manufacturing cost of each drive

Direct Material 23

Direct LAbour 15

Variable o/h 2

Fixed o/h 24 (1200000/50000)

Manufacturing cost 64

(b) Incremental unit cost per additional drive

Direct Material 23

Direct LAbour 15

Variable o/h 2

Incremental cost per unit 40

(c) Incremental cost 40

+ Desired profit 13 ( 130000/10000)

Selling price p.unit 53

Note: Fixed cost to be ignored because it's fixed either we have to produce 50000 units or 60000 units.

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