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 $ 23 Direct labor 15 Variable manufacturing overhead 2 Fixed costs per month: Fixed manufacturing overhead $ 1,500,000 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 $110,000 in monthly pretax profit on the sale of drives to Desk-Mate.

Explanation / Answer

Capacity 80000 Production & Sales 50000 Variable Cost PU: Direct Material 23.00 Direct Labor 15.00 Variable M OH 2.00 Total 40.00 Fixed M. OH: 1500000 Production 50,000 Per Unit FOH 30.00 A Average Unit Cost: Variable Cost PU: Direct Material 23.00 Direct Labor 15.00 Variable M OH 2.00 Per Unit FOH 30.00 Total Costs 70.00 B Incremental Unit Cost: Since Idle Capacity is available; Variable Cost is the Incremental Cost Variable Cost PU: Direct Material 23.00 Direct Labor 15.00 Variable M OH 2.00 Total Incremental Cost 40.00 C Computation of Per Unit Sales Price: Desired Profit 110000 Current Units 50,000 Fixed Cost 1500000 Offer 10000 Variable Cost 2400000 (60000*40) Total Units 60,000 Total Desired Revenue 4010000 Total Units 60000 Per Unit Sales Price 66.83

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