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Sutherland manufactures and sells 50,000 laser printers each month. A principal component part in each printer is its paper feed drive. Sutherlands plant currently has the monthly capacity to 80,000 drives. The unit costs of manufacturing these paper feed drives (up to 80,000 per month) are as follows:

Variable costs per unit:

Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23

Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Variable manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Fixed costs per month:

Fixed manufacturing overhead allocated to paper feed drives. . . . . . . . . . $500,000

Another company, Desk-Mate Printers, has offered to buy 10,000 paper feed drives from Sutherland to be used in its own printers. Compute the following:

a. The average unit cost of manufacturing each paper feed drive, assuming that Sutherland manufactures 50,000 paper feed drives each month, just enough to be used in its own printers.

b. The incremental unit cost of producing an additional paper feed drive beyond the 50,000 units. [Hint: Whether Sutherland produces just 50,000 units or more than 50,000 units, the fixed costs will remain the same as long as the total units manufactured is within the plants production capacity of 80,000. In other words, only variable costs are relevant to the computation of incremental costs.]

c. Sutherland plans to accept the special order and would like to earn a monthly pretax profit of $120,000 on the sale of drives to Desk-Mate. Based on your answer to part b, what is the per-unit sales price that Sutherland should charge DeskMate?

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