McVay Industries (MI) produces ice cream supplies including bowls, scoops and shake makers.MI made $605,000 of pre-tax profit last year which was slightly over 7% of sales. They arelooking for ways to improve profitability and are considering outsourcing production of theirshake makers. Juan Hernandez, the controller, compiled the following information.Units Manufactured and soldDM per unitDL per unitVMOH per unitFMOH per unit (based on currentproduction)Total Cost per unitSelling PriceGross Profit per UnitShakeMakers100,000Bowls2,000,000Scoops500,000$0.50$0.10$0.15$0.40$1.25$0.50$0.25$0.50$5.00$4.00$5.00$5.00$1.15$2.00$0.85$2.50$4.00$1.50$19.00$25.00$6.00TOTALTotal Sales$4,000,000$2,000,00$2,500,000$8,500,000COGS$2,300,000$1,250,00$1,900,000$5,450,000Total Gross ProfitTotal Variable (selling) costsSG&A Fixed Costs – Direct*SG&A Fixed Costs – Common**Pre-Tax Profit$1,700,000($300,000)($400,000)($680,000)$320,000$750,000($100,000)($200,000)($300,000)$150,000$600,000($125,000)($100,000)($240,000)$135,000$3,050,000($525,000)($700,000)($1,220,000)$605,000* Direct SG&A Fixed Costs can be eliminated if the specific product is outsourced.** Common SG&A Fixed Costs can not be eliminated even if the specific product is outsourced.If the shake maker is outsourced, fixed manufacturing overhead costs of $100,000 to leasemachinery related to shake maker production could be eliminated. Assume that direct fixedSG&A expenses relate directly to the shake makers line and could be completely eliminated ifthe shake maker product line is dropped.Additionally, if the shake maker is outsourced, the company would have idle capacity and couldproduce and sell an additional 150,000 bowls (for the same selling price of $2 per bowl).Question: What is the maximum amount MI should pay for the shake maker from anindependent supplier (price per unit) to be no worse off financially? Show your work.
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