John Boyd Corporation manufactures and sells 1,000 tractors each month. The primary component in each tractor is the motor. John Boyd has the monthly capacity to produce 1,300 motors. The variable costs associated with manufacturing each motor are shown below:
Direct materials: $24
Direct labor: $16
Variable Manufacturing Overhead: $29
Fixed manufacturing overhead per month (for up to 1,300 units of production) averages $27,000. Joan Reid, Inc. has offered to purchase 200 motors from John Boyd per month to be used in its own outboard motors.
1. Refer to the information above. If Joan Reid s order is rejected, what will be John Boyd's average unit cost of manufacturing each motor?
a. $68 per unit.
b. $70 per unit.
c. $96 per unit.
d. Some other amount.
2. Refer to the information above. Assuming John Boyd wants to earn a pretax profit of $10,000 on this special order, what price must it charge Joan Reid?
e. $69 per unit.
f. $83 per unit.
g. $95 per unit.
h. Some other amount.
JCN Industries normally produces and sells 5,000 keyboards for personal computers each month. Variable manufacturing costs amount to $25 per unit, and fixed costs are $146,000 per month. The regular sales price of the keyboards is $86 per unit. JCN has been approached by a foreign company that wants to purchase an additional 1,000 keyboards per month at a reduced price. Filling this special order would not affect JCN's regular sales volume or fixed manufacturing costs.
3. Refer to the information above. On the basis of the above information only, which of the following is not true?
i. At the 5,000-unit level of production, JCN's average cost per unit is $54.20.
j. At the 6,000-unit level of production, JCN's average cost per unit is $49.33.
k. It would not be profitable for JCN to consider the special order at a price less than $49 per unit.
l. The fixed manufacturing costs of $146,000 is not relevant to this decision regarding the special order.