Reference no: EM132382190

Question :

Gamer Industries manufactures precision tools. The firm uses an activity-based costing system. CEO Deb Garner is very proud of accuracy of the system in determining product costs. She noticed that since the installment of the ABC system 10 years earlier. 'chi had become much more competitive in all aspects of the business and earned an Increasing amount of profits every year.

In the last two years, the firm sold 0.628 million units to 4.100 customers each year. The manufacturing cost Is $500 per unit In addition. Gamer has determined that the order-filling cost is $3533 per unit. The $696.00 selling price per unit includes 16% marl. cover administrative costs and profits.

The order-filling cost per unit Is determined based on the firm's costs for order-filling activities. Order-filling capacity can be addec blocks of 60 orders. Each block costs $60.000. In addition. the firm incurs $1200 order-filling costs per order.

Gamer serves two types of customers designated as PC (Preferred Customer) and SC (Small Customer). Each of the 100 PCs buys average. 5.000 units in two orders.

The firm also sells 128.000 units to 1.000 SCs. On average each SC buys 128 units In 10 orden Cheap. a buyer for one PC. complains about the high price he is paying. Cheap claims that he has been offered a price of $600 p unit and threatens to take his business elsewhere.

Garner does not give in because the $600 price Cheap demands is below cos Besides. she has recently raised the price to SC to $67188 per unit and experienced no decline in orders.

Required:

1. Demonstrate how Gamer arrives at the $3533 order-filling cost per unit.

2. What would be the amount of loss (profit) per unit If Garner sells to Cheap at $600 per unit?

3. What is the amount of loss (profit) per unit at the $671.88 selling price per unit for units sold to SC?