Compute the Minimum Price a Product would be Accept to Sell Product to the HI-FI Division

Question

Audio Systems Inc. (ASI) has a division, Quality Speakers that produces a speaker that is used by manufacturers of various audio equipment products. The division has a capacity of 40,000 units and is currently operating at 85% capacity. The speakers are currently priced at $46 per unit. The variable cost to produce is $20 per unit and the fixed cost per unit based upon capacity is $9 per unit.

ASI has another division, HI-FI Division, that produces sound systems and requires 9,000 speakers based upon its expected production for the coming year. HI-FI currently has a quote to purchase speakers from a third party manufacturer for $26 per speaker.

Required:

Compute the minimum price that Quality Speakers would be willing to accept to sell speakers to the HI-FI Division.

Summary: This question belongs to management accounting and discusses about a company’s products and to compute the minimum price that product would be willing to accept to sell product to the HI-FI Division.

Total word count: 35