Marco Enterprises manufactures one of the components used to assemble its main company product. Specialty Products, Inc., has offered to make the component at a cost of $12.70 per unit. Marco Enterprises' current cost is $12.75 per unit of the component, based on the 80,000 components that Marco Enterprises currently produces. Data table This current cost per unit is based on the following calculations: (Click the icon to view the information.) Requirements None of Marco Enterprises' fixed costs will be eliminated if the component is outsourced. However, the freed capacity could be used to build a new product. This new product would be expected to generate $25,000 of contribution margin per year. Direct material per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per unit Total manufacturing costs per unit $ $ 4.00 5.25 0.75 2.75 12.75 X pmponent, SA 1. If Marco Enterprises outsources the manufacturing of the component, will operating income increase or decrease? By how much? - 2. What is the maximum price per unit Marco Enterprises would be willing to pay if it outsources the component?
Marco Enterprises manufactures one of the components used to assemble its main company product. Specialty Products, Inc., has offered to make the component at a cost of $12.70 per unit. Marco Enterprises' current cost is $12.75 per unit of the component, based on the 80,000 components that Marco Enterprises currently produces. Data table This current cost per unit is based on the following calculations: (Click the icon to view the information.) Requirements None of Marco Enterprises' fixed costs will be eliminated if the component is outsourced. However, the freed capacity could be used to build a new product. This new product would be expected to generate $25,000 of contribution margin per year. Direct material per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per unit Total manufacturing costs per unit $ $ 4.00 5.25 0.75 2.75 12.75 X pmponent, SA 1. If Marco Enterprises outsources the manufacturing of the component, will operating income increase or decrease? By how much? - 2. What is the maximum price per unit Marco Enterprises would be willing to pay if it outsources the component?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Marco Enterprises manufactures
one of the components used to
assemble its main company
product. Specialty Products, Inc.,
has offered to make the component
at a cost of $12.70 per unit. Marco
Enterprises' current cost is $12.75
per unit of the component, based
on the 80,000 components that
Marco Enterprises currently
produces.
Data table
This current cost per unit is based on the
following calculations:
(Click the icon to view the information.)
Requirements
None of Marco Enterprises' fixed costs will
be eliminated if the component is
outsourced. However, the freed capacity
could be used to build a new product. This
new product would be expected to generate
$25,000 of contribution margin per year.
Direct material per unit
Direct labor per unit
Variable manufacturing overhead per unit
Fixed manufacturing overhead per unit
Total manufacturing costs per unit
$
$
4.00
5.25
0.75
2.75
12.75
X
pmponent,
SA
-
1.
If Marco Enterprises outsources the manufacturing of the component, will
operating income increase or decrease? By how much?
2.
What is the maximum price per unit Marco Enterprises would be willing to pay
if it outsources the component?
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