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 Fixed costs per month: Fixed manufacturing overhead $1,400,000 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 $140,000 in monthly pretax profit on the sale of drives to Desk-Mate.

Explanation / Answer

Answer Part 1 Computation of average per unit manufacturing cost at 50000 units per month Variable cost per unit      Direct material $23      Direct labor $15      Variable Manufacturing overhead $2 Total Variable cost $40 Add: Fixed manufacturing cost per unit ($1400000/50000units) $28 Average per unit manufacturing cost $68 Part 2 Computation of incremental cost per paper feed drive is the products unit variable cost      Direct material $23      Direct labor $15      Variable Manufacturing overhead $2 Total $40 Part 3 Computation of per unit sales price      Direct material $23      Direct labor $15      Variable Manufacturing overhead $2 Add: Desired profit $14 ($140000/10000 paper) Unit sales price $54

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