Calculation minimum unit price to be set to product.
Generators, Inc. produced emergency backup generators for use in large commercial buildings. The costs of manufacturing and marketing the generators at the company's normal volume of 3,000 units per month are shown.
Costs per Unit for Generators
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Unit Manufacturing costs:
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Variable Materials
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$1,000
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Variable Labor
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1,500
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Variable Overhead
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500
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Fixed Overhead
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1,200
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Total Manufacturing Cost
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$4,200
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Unit Marketing Costs:
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Variable
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500
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Fixed
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1,400
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|
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Total Marketing Cost
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1,900
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Total Unit Cost:
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$6,100
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The following questions refer only to the data given above. Unless otherwise stated, assume there is no connection between situations described in each of the questions, each is to be treated independently. Unless otherwise stated, a regular selling price of $7,400 per unit should be assumed.
Redi-Watt has an opportunity to enter a foreign market that is very price competitive. An attraction to the foreign market is that demand is greatest when demand in the domestic market is low, thus idle production facilities could be used without affecting domestic business. An order for 1,000 units is being sought at a below normal price in order to enter this market. Shipping costs for the units will amount to $750 per unit, while total costs of obtaining the contract (marketing costs) will be $40,000. Domestic business would be unaffected by this order. What is the minimum unit price Redi-Watt should consider for this order of 1,000 units.