Perez Company makes and sells lawn mowers for which it currently makes the engines. It has an opportunity to purchase the engines from a reliable manufacturer. The annual costs of making the engines are shown here. Cost of materials (13,300 units × $13) $ 172,900 Labor (13,300 units × $14) 186,200 Depreciation on manufacturing equipment* 29,000 Salary of supervisor of engine production 69,000 Rental cost of equipment used to make engines 15,000 Allocated portion of corporate-level facility-sustaining costs 79,000 Total cost to make 13,300 engines $ 551,100 *The equipment has a book value of $109,000 but its market value is zero. Required Determine the maximum price per unit that Perez would be willing to pay for the engines. Determine the maximum price per unit that Perez would be willing to pay for the engines, if production increased to 19,000 units.

Perez Company makes and sells lawn mowers for which it currently makes the engines. It has an opportunity to purchase the engines from a reliable manufacturer. The annual costs of making the engines are shown here. Cost of materials (13,300 units × $13) $ 172,900 Labor (13,300 units × $14) 186,200 Depreciation on manufacturing equipment* 29,000 Salary of supervisor of engine production 69,000 Rental cost of equipment used to make engines 15,000 Allocated portion of corporate-level facility-sustaining costs 79,000 Total cost to make 13,300 engines $ 551,100 *The equipment has a book value of $109,000 but its market value is zero. Required Determine the maximum price per unit that Perez would be willing to pay for the engines. Determine the maximum price per unit that Perez would be willing to pay for the engines, if production increased to 19,000 units.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter6: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 1PB: Classify costs Cromwell Furniture Company manufactures sofas for distribution to several major...

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Cost of materials (13,300 units × $13)	$ 172,900
Labor (13,300 units × $14)	186,200
Depreciation on manufacturing equipment*	29,000
Salary of supervisor of engine production	69,000
Rental cost of equipment used to make engines	15,000
Allocated portion of corporate-level facility-sustaining costs	79,000
Total cost to make 13,300 engines	$ 551,100

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Determine the maximum price per unit that Perez would be willing to pay for the engines.
Determine the maximum price per unit that Perez would be willing to pay for the engines, if production increased to 19,000 units.

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