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 (14,400 Units X $30) Labor (14,400 Units X $25) 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 14,400 engines $ $ 432,000 360,000 38,000 80,000 23,000 72,000 1,005,000 "The equipment has a book value of $107,000 but its market value is zero. Required a. Determine the maximum price per unit that Campbell would be willing to pay for the engines.
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 (14,400 Units X $30) Labor (14,400 Units X $25) 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 14,400 engines $ $ 432,000 360,000 38,000 80,000 23,000 72,000 1,005,000 "The equipment has a book value of $107,000 but its market value is zero. Required a. Determine the maximum price per unit that Campbell would be willing to pay for the engines.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text: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 (14,400 Units x $30)
Labor (14,400 Units X $25)
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 14,400 engines
$
$
432,000
360,000
38,000
80,000
23,000
72,000
1,005,000
*The equipment has a book value of $107,000 but its market value is zero.
Required
a. Determine the maximum price per unit that Campbell would be willing to pay for the engines.
b. Determine the maximum price per unit that Campbell would be willing to pay for the engines, if production increased to 18,800
units.
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