Establishing price for an outsourcing decision
Pretty Lawn 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 (24,000 Units × $15)
Labor (24,000 Units × $20)
Depreciation on manufacturing equipment*
Salary of supervisor of engine production
Rental cost of equipment used to make engines
Allocated portion of corporate-level facility-sustaining costs
Total cost to make 24,000 engines
a. Determine the maximum price per unit that Pretty Lawn would be willing to pay for the engines.
b. Would the price computed in Requirement a change if production increased to 30,000 units? Support your answer with appropriate computations.