Happy's Model Cars manufactures a part used in the production of small model toy cars for...

 

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Happy's Model Cars manufactures a part used in the production of small model toy cars for children. Happy has a maximum capacity to produce 12,500 units of the parts for small model toy cars per month and is currently operating at 80% capacity. The following is the variable cost portion to produce a unit part for the small model toy car: Direct materials.. Direct labor......... Variable manufacturing overhead.... Total variable manufacturing cost per car..... $0.60 3.00 1.50 $5.10 The current total fixed manufacturing overhead incurred to produce the 10,000 parts is $13,000. This fixed overhead cost will increase by 10% if production exceeds 12,500 cars. Sam Associates Toy Company has offered to purchase 2,050 parts from Happy per month for the next two years for its own model of toy car but is willing to pay Happy only $4.50 per part. Required: What is the average cost to produce a unit of the part for the toy car? (2 marks) a) b) What is the incremental cost to produce one additional part? (2 marks) c) Should Happy accept Sam's offer of $4.50 per part? Explain. (2 marks) d) What is the minimum price per part that Happy should charge Sam to breakeven for the sales? e) (2 marks) If the price negotiation gets through, how much should Happy charge Sam per part for the toy car in order to earn a $4,000 profit on this sale per month of 2,050 parts? (2 marks) Happy's Model Cars manufactures a part used in the production of small model toy cars for children. Happy has a maximum capacity to produce 12,500 units of the parts for small model toy cars per month and is currently operating at 80% capacity. The following is the variable cost portion to produce a unit part for the small model toy car: Direct materials.. Direct labor......... Variable manufacturing overhead.... Total variable manufacturing cost per car..... $0.60 3.00 1.50 $5.10 The current total fixed manufacturing overhead incurred to produce the 10,000 parts is $13,000. This fixed overhead cost will increase by 10% if production exceeds 12,500 cars. Sam Associates Toy Company has offered to purchase 2,050 parts from Happy per month for the next two years for its own model of toy car but is willing to pay Happy only $4.50 per part. Required: What is the average cost to produce a unit of the part for the toy car? (2 marks) a) b) What is the incremental cost to produce one additional part? (2 marks) c) Should Happy accept Sam's offer of $4.50 per part? Explain. (2 marks) d) What is the minimum price per part that Happy should charge Sam to breakeven for the sales? e) (2 marks) If the price negotiation gets through, how much should Happy charge Sam per part for the toy car in order to earn a $4,000 profit on this sale per month of 2,050 parts? (2 marks)