Question

Sandusky Inc. has the following costs when producing 100,000 units: Variable costs $600,000 Fixed costs 900,000 An outside supplier is interested in producing the item for Sandusky. If the item is produced outside, Sandusky could use the released production facilities to make another item that would generate $150,000 of net income. At what unit price would Sandusky accept the outside supplier's offer if Sandusky wanted to increase net income by $120,000?

Answer 1

Answer:

$6.30

Explanation:

For computing the unit price, first we have to determine the difference in cost which is shown below:

= $150,000 - $120,000

= $30,000

Now the break even price would be

= Variable cost + cost difference

= $600,000 + $30,000

= $630,000

So, the unit price would be

= Break even price ÷ number of unit produced

= $630,000 ÷ 100,000 units

= $6.30