Alton Inc. is working at full production capacity producing 26,000 units of a unique product. Manufacturing...

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Alton Inc. is working at full production capacity producing26,000 units of a unique product. Manufacturing costs per unit forthe product are as follows: Direct materials $ 10 Direct labor 9Manufacturing overhead 11 Total manufacturing cost per unit $ 30The per-unit manufacturing overhead cost is based on a $5 variablecost per unit and $156,000 fixed costs. The nonmanufacturing costs,all variable, are $8 per unit, and the sales price is $45 per unit.Sports Headquarters Company (SHC) has asked Alton to produce 6,500units of a modification of the new product. This modification wouldrequire the same manufacturing processes. However, because of thenature of the proposed sale, the estimated nonmanufacturing costsper unit are only $4 (not $8). Alton would sell the modifiedproduct to SHC for $35 per unit.
Required: Suppose that Alton Inc. had been working at less thanfull capacity to produce 21,400 units of the product when SHC madethe offer. What is the minimum price per unit that Alton shouldaccept for the modified product under these conditions?

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3.9 Ratings (697 Votes)

Direct materials 10 per unit Direct labor 9 per unit Variable Manufacturing overhead 5 per unit Variable Nonmanufacturing costs 8 per unit Total variable cost per unit 10 9 5 8 32 Sales price 45 per unit See Answer

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