Should the proposal be accepted for a price per unit

Assignment Help Cost Accounting

Reference no: EM132816087

Davis Kitchen Supply produces stoves for commercial kitchens. The costs to manufacture and market the stoves at the company's normal volume of 6,000 units per month are shown in the following table.

Unit manufacturing costs

Variable materials$51
Variable labor 76
Variable overhead 26
Fixed overhead 61
Total unit manufacturing costs $214
Unit marketing costs
Variable 26
Fixed 71
Total unit marketing costs 97
Total unit costs $311

Problem a. A proposal is received from an outside contractor who will make and ship 2,000 stoves per month directly to Davis's customers as orders are received from Davis's sales force. Davis's fixed marketing costs would be unaffected, but its variable marketing costs would be cut by 20 percent for these 2,000 units produced by the contractor. The idle facilities would be used to produce 1,600 modified stoves per month for use in extreme climates. These modified stoves could be sold for $451 each, while the costs of production would be $276 per unit variable manufacturing expense. Variable marketing costs would be $51 per unit. Fixed marketing and manufacturing costs would be unchanged whether the original 6,000 regular stoves were manufactured or the mix of 4,000 regular stoves plus 1,600 modified stoves were produced. What in-house unit cost should be used to compare with the quotation received from the outside contractor? Assume the payment to the outside contractor is $216.

Problem b. Should the proposal be accepted for a price of $216 per unit to the outside contractor?

Reference no: EM132816087

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