Campbell Company makes and sells lawn mowers for which it currently makes the engines. It...
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Accounting
Campbell 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 (15,000 Units $23) | $ | 345,000 | |
| Labor (15,000 Units $16) | 240,000 | ||
| Depreciation on manufacturing equipment* | 34,000 | ||
| Salary of supervisor of engine production | 85,000 | ||
| Rental cost of equipment used to make engines | 12,000 | ||
| Allocated portion of corporate-level facility-sustaining costs | 74,000 | ||
| Total cost to make 15,000 engines | $ | 790,000 | |
*The equipment has a book value of $93,000 but its market value is zero.
Required
Determine the maximum price per unit that Campbell would be willing to pay for the engines.
Determine the maximum price per unit that Campbell would be willing to pay for the engines, if production increased to 18,050 units?
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