Answer:
Stuart Modems
a. The per-unit cost of making and selling 2,600 pagers is:
= $64.55
b. Assuming that Stuart could sell the pagers at a price of $50 each, it should still go with the plan to make and sell the pagers. The variable cost for producing a pager is $38.60. Each pager will make a unit contribution margin of $11.40, which will help to offset the facility-level costs since they will not be influenced by the production of the pagers.
Explanation:
a) Data and Calculations:
Production and sales volume = 2,600 pages
Unit-level manufacturing costs = $36
Total manufacturing costs = $93,600 ($36 * 2,600)
Sales commissions = $6,760 ($2.60 * 2,600)
Facility-level costs:
Depreciation on manufacturing equipment ($76,000)
Rent on the manufacturing facility ($66,000)
Depreciation on the administrative equipment ($16,800)
Other fixed administrative expenses ($79,950)
Total facility-level costs = $238,750
Overhead rate = $25.95 ($238,750/9,200)
Cost of making and selling 2,600 pagers:
Total manufacturing costs = $93,600
Overhead costs ($25.95 * 2,600) 67,470
Sales commissions = 6,760
Total cost of making and selling $167,830
Unit cost = $64.55 ($167,830/2,600)
Variable cost of making and selling a unit of pager:
Unit-level manufacturing costs = $36.00
Sales commissions = $2.60
Total variable costs = $38.60
Revenue per unit = $50.00
Contribution per unit = $11.40
