Q1) Generators, Inc. manufactured emergency backup generators for use in large commercial buildings. Costs of manufacturing and marketing generators at company's normal volume of 3,000 units per month are shown.
Costs per Unit for Generators
| Unit Manufacturing costs: |
| Variable Materials |
$1,000 |
|
| Variable Labor |
1,500 |
|
| Variable Overhead |
500 |
|
| Fixed Overhead |
1,200 |
|
| Total Manufacturing Cost |
|
$4,200 |
| Unit Marketing Costs: |
| Variable |
500 |
|
| Fixed |
1,400 |
|
| Total Marketing Cost |
|
1,900 |
| Total Unit Cost: |
|
$6,100 |
Following questions refer only to data given above. Unless otherwise stated, suppose there is no connection between situations explained in each of questions, each is to be treated independently. Unless otherwise stated, regular selling price of $7,400 per unit must be assumed.
Redi-Watt has the opportunity to enter foreign market which is very price competitive. Attraction to foreign market is that demand is greatest when demand in domestic market is low, hence idle production facilities could be used without affecting domestic business. Order for 1,000 units is being sought at below normal price in order to enter this market. Shipping costs for units will amount to $750 per unit, where as total costs of obtaining contract (marketing costs) will be $40,000. Domestic business would be unaffected by this order. Determine minimum unit price Redi-Watt must consider for this order of 1,000 units.