Establishing price for an outsourcing decisionPretty Lawn Company makes and sells lawn mow

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)

$360,000

Labor (24,000 Units × $20)

480,000

Depreciation on manufacturing equipment*

12,000

Salary of supervisor of engine production

90,000

Rental cost of equipment used to make engines

24,000

Allocated portion of corporate-level facility-sustaining costs

30,000

Total cost to make 24,000 engines

$996,000

Required

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.