Establishing price for an outsourcing decision Lunn 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.

Required
a. Determine the maximum price per unit that Lunn would be willing to pay for the engines.
b. Would the price computed in Requirement a change if production increased to 18,750 units? Support your answer with appropriate computations.

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Cost of materials (15,000 Units x $24) Labor (15,000 Units x $26) 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 15,000 engines $360,000 390,000 42,000 85,000 23,000 80,000 $980,000 *The equipment has a book value of $90,000 but its market value is zero.