The Shoebottom Company has a maximum production capacity of 35,000 units per year. For that capacity level, fixed costs are $340,000 per year. Variable costs per unit are $70. In the coming year, the company has orders for 39,000 units at $100. The company wants to make a minimum overall operating income of $150,000 on these 39,000 units. Requirement What maximum unit purchase price would Shoebottom Company be willing to pay to a subcontractor for the additional 4,000 units it cannot manufacture itself to earn an operating income of $150,000?
The Shoebottom Company has a maximum production capacity of 35,000 units per year. For that capacity level, fixed costs are $340,000 per year. Variable costs per unit are $70. In the coming year, the company has orders for 39,000 units at $100. The company wants to make a minimum overall operating income of $150,000 on these 39,000 units. Requirement What maximum unit purchase price would Shoebottom Company be willing to pay to a subcontractor for the additional 4,000 units it cannot manufacture itself to earn an operating income of $150,000?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The Shoebottom Company has a maximum production capacity of 35,000 units per year. For that capacity level, fixed
costs are $340,000 per year. Variable costs per unit are $70. In the coming year, the company has orders for 39,000
units at $100. The company wants to make a minimum overall operating income of $150,000 on these 39,000 units.
Requirement
What maximum unit purchase price would Shoebottom Company be willing to pay to a subcontractor for the
additional 4,000 units it cannot manufacture itself to earn an operating income of $150,000?
Determine the maxiumum total cost to Shoebottom Company of producing the 39,000 units while earning an
operating income of $150,000.
Total costs to produce 39,000 units is
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