Make vs. Buy; Strategy Martens Inc. manufactures a variety of electronic products. It specializes in commercial and residential products with moderate-to-large electric motors such as pumpsand fans. Martens is now looking closely at its production of attic fans, which included 10,000 unitsin the prior year (see the table below). These costs included $100,000 of allocated fixed manufacturing overhead. Martens has capacity to manufacture 15,000 attic fans per year.Martens believes demand in the coming year will be 20,000 attic fans. The company has lookedinto the possibility of purchasing the attic fans from another manufacturer to help it meet thisdemand. Harris Products, a steady supplier of quality products, would be able to provide up to 9,000attic fans per year at a price of $46.00 per fan delivered to Martens’s facility.The following is based on the production of 10,000 units in the prior year:[LO 11-3]Selling price per unit $72.00Costs per unit:Electric motor $ 6.00Other parts 8.00Direct labor ($15/hour) 15.00Manufacturing overhead 15.00Selling and administrative cost 20.00 64.00Profit per unit $ 8.00The selling and administrative cost of $20.00 per unit (fan) includes (at a sales level of 10,000units) fixed costs of $6.00 per unit. Required1. What is the (short-term) relevant manufacturing cost per fan for Martens? (Round your answer to2 decimal places.)2. Given the projected demand of 20,000 units, how many units should the company manufacture, andhow many units (if any) should it purchase from Harris Products? Assume that the variable selling andadministrative expense will be incurred for all sales. Explain your reasoning. Under this optimum plan,what is the total contribution margin?
Make vs. Buy; Strategy Martens Inc. manufactures a variety of electronic products. It specializes in commercial and residential products with moderate-to-large electric motors such as pumps
and fans. Martens is now looking closely at its production of attic fans, which included 10,000 units
in the prior year (see the table below). These costs included $100,000 of allocated fixed manufacturing overhead. Martens has capacity to manufacture 15,000 attic fans per year.
Martens believes demand in the coming year will be 20,000 attic fans. The company has looked
into the possibility of purchasing the attic fans from another manufacturer to help it meet this
demand. Harris Products, a steady supplier of quality products, would be able to provide up to 9,000
attic fans per year at a price of $46.00 per fan delivered to Martens’s facility.
The following is based on the production of 10,000 units in the prior year:
[LO 11-3]
Selling price per unit $72.00
Costs per unit:
Electric motor $ 6.00
Other parts 8.00
Direct labor ($15/hour) 15.00
Manufacturing overhead 15.00
Selling and administrative cost 20.00 64.00
Profit per unit $ 8.00
The selling and administrative cost of $20.00 per unit (fan) includes (at a sales level of 10,000
units) fixed costs of $6.00 per unit.
Required
1. What is the (short-term) relevant
2 decimal places.)
2. Given the projected demand of 20,000 units, how many units should the company manufacture, and
how many units (if any) should it purchase from Harris Products? Assume that the variable selling and
administrative expense will be incurred for all sales. Explain your reasoning. Under this optimum plan,
what is the total contribution margin?
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