Reference no: EM131784290

Probem

Reginald is the controller for Scoot Inc. Scoot makes mobility scooters for senior citizens who have difficulty walking. Scoot has always manufactured the motors for its scooters inhouse; however, the marketing manager of Moto Industries has offered to sell motors to Scoot for $420 each. At the current level of demand of 4,500 units, the cost to produce one motor is as follows:
                                                         Unit cost
Direct materials                                   $130
Direct labour                                       140
Manufacturing overhead (60% fixed)     290
Total                                                  $560

Reginald has approached the company engineers with this proposal. They discussed the option of purchasing the motors from Moto and producing a new scooter called the Turbo X in the manufacturing space previously used to produce the motors. It is estimated that Scoot Inc. could sell 750 Turbo X scooters per year. The estimated costs to produce one unit of Turbo X are as follows:

                                                         Unit cost
Direct materials                                   $1,000 
Direct labour                                       $780 
Variable manufacturing costs                $120 
Additional fixed manufacturing costs     $320

At what selling price for the Turbo X will Scoot be indifferent between continuing to manufacture the motors in-house and outsourcing the motors and manufacturing the Turbo X?