Answer:
Sutherland
a. The average unit cost of manufacturing each paper feed drive is:
= $56.25.
b. The incremental unit cost of producing an additional paper feed drive is:
= $170.
c. The per-unit sales price that Sutherland should charge Desk-Mate to earn $140,000 in monthly pre-tax profit on the sale of drives to Desk-Mate is:
= $184.
Explanation:
a) Data and Calculations:
Production and sales of laser printers per month = 50,000
Monthly production capacity for paper feed drives = 80,000
Unit costs of producing drives:
Variable costs per unit:
Direct materials                 $ 23
Direct labor                       15
Variable manufacturing overhead     2
Variable cost per unit            $40  $3,200,000 (80,000 * $40)
Fixed costs per month:
Fixed manufacturing overhead          $1,300,000
Total production costs = Â Â Â Â Â Â Â Â Â Â Â Â Â Â $4,500,000
Average unit cost = Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $56.25 ($4,500,000/80,000)
Incremental unit cost of producing an additional paper feed drive:
Variable cost = $40 * 10,000 = Â Â Â Â $400,000
Additional fixed cost per month = $1,300,000
Total incremental costs = Â Â Â Â Â Â Â $1,700,000
Unit cost = $170 ($1,700,000/10,000)
Total incremental costs = Â $1,700,000
Monthly pre-tax target profit  140,000
Expected sales revenue = $1,840,000
Sales price per drive = $184 ($1,840,000/10,000)
