Special Order Decision Prudent Products Corporation Manufactures and Sells 1,000 Motorcycle Engines Each

Special order decision
Prudent Products Corporation manufactures and sells 1,000 motorcycle engines each month. A primary component in each motor is an oil pump used to keep the motor lubricated. Prudent Products has the monthly capacity to produce 1,500 oil pumps. The variable unit costs associated with manufacturing each pump are shown below:

Fixed manufacturing overhead per month (for up to 1,500 units of production) averages $46,000. Volk's Autos, Inc., has offered to purchase 250 oil pumps from Prudent Products per month to be used in its own motorcycles.
(a) Prudent Product's average unit cost of manufacturing each oil pump if it rejects Volk's Autos' order is $___________ per unit.
(b) The incremental unit cost of producing each additional oil pump is $___________ per unit.
(c) If this special order is accepted, the price per unit that Prudent Products could charge Volk's Autos in order to earn a $20,000 monthly pretax profit on the sale is $___________ per unit.

Correct Answer:

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(a) 160
(b...

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