Question

Guzman Corporation makes and sells skateboards. Guzman currently makes the 60,000 wheels used annually in its skateboards but has an opportunity to purchase the wheels from a reliable manufacturer. The costs of making the wheels follow.
Annual Costs Associated with Manufacturing Skateboard Wheels
Materials (60,000 units x $4) ................ $240,000
Labor (60,000 units x $2) .................. 120,000
Depreciation on manufacturing equipment* .......... 24,000
Salary of wheel production supervisor ............. 65,000
Rental cost of equipment used to make wheels ......... 55,000
Allocated portion of corporate-level facility-sustaining costs ..... 33,000
Total cost to make 60,000 wheels ................ $537,000
*The equipment has a book value of $74,000 but its market value is zero.

Required
a. Determine the maximum price per unit that Guzman would be willing to pay for the wheels.
b. Would the price computed in Requirement a change if production were increased to 80,000 units? Support your answer with appropriate computations.



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  • CreatedFebruary 07, 2014
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