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