Fanning 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 (13,100 Units × $22)$288,200 Labor (13,100 Units × $14) 183,400 Depreciation on manufacturing equipment* 38,000 Salary of supervisor of engine production 74,000 Rental cost of equipment used to make engines 24,000 Allocated portion of corporate-level facility-sustaining costs 81,000 Total cost to make 13,100 engines$688,600 *The equipment has a book value of $97,000 but its market value is zero. RequiredDetermine the maximum price per unit that Fanning would be willing to pay for the engines.Determine the maximum price per unit that Fanning would be willing to pay for the engines, if production increased to 18,550 units? (For all requirements, round your intermediate calculations and final answers to 2 decimal places.)

The maximum price one can be willing to pay will only the relevant cost to manufacture engines on…

Answered: Fanning Company makes and sells lawn…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Fanning 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 (13,100 Units × $22)	$	288,200
Labor (13,100 Units × $14)		183,400
Depreciation on manufacturing equipment*		38,000
Salary of supervisor of engine production		74,000
Rental cost of equipment used to make engines		24,000
Allocated portion of corporate-level facility-sustaining costs		81,000
Total cost to make 13,100 engines	$	688,600

^*The equipment has a book value of $97,000 but its market value is zero.

Required

Determine the maximum price per unit that Fanning would be willing to pay for the engines.
Determine the maximum price per unit that Fanning would be willing to pay for the engines, if production increased to 18,550 units?

(For all requirements, round your intermediate calculations and final answers to 2 decimal places.)

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