MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has received a bid from Monte Legend Co, (MLC) to produce 15,000 units of the module per year for $3200 each. The following information pertains to MSI's production of the control modules: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit $15 10 $34 MSI has determined that it could eliminate all variable costs if the control modules were produced externally, but none of the fixed overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module production. Required: 1. Compute the difference in cost between making and buying the control module. 2. Should MSI buy the modules from MLC or continue to make them? 3-a. Suppose that the MSI space currently used for the modules could be utilized by a new product line that would generate $27,000 in annual profit. Recompute the difference in cost between making and buying under this scenario. 3-b. Does this change your recommendation to MSI? Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Reg 3A Reg 3B Compute the difference in cost between making and buying the control module. Difference in Cost Reg 2 >
MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has received a bid from Monte Legend Co, (MLC) to produce 15,000 units of the module per year for $3200 each. The following information pertains to MSI's production of the control modules: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit $15 10 $34 MSI has determined that it could eliminate all variable costs if the control modules were produced externally, but none of the fixed overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module production. Required: 1. Compute the difference in cost between making and buying the control module. 2. Should MSI buy the modules from MLC or continue to make them? 3-a. Suppose that the MSI space currently used for the modules could be utilized by a new product line that would generate $27,000 in annual profit. Recompute the difference in cost between making and buying under this scenario. 3-b. Does this change your recommendation to MSI? Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Reg 3A Reg 3B Compute the difference in cost between making and buying the control module. Difference in Cost Reg 2 >
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
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Enter all three of the required questions (including 3a and 3b)
Transcribed Image Text:MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has
received a bid from Monte Legend Co. (MLC) to produce 15,000 units of the module per year for $32.00 each. The following
information pertains to MSI's production of the control modules:
Direct materials
$15
Direct labor
10
Variable manufacturing overhead
Fixed manufacturing overhead
Total cost per unit
3
$34
MSI has determined that it could eliminate all variable costs if the control modules were produced externally, but none of the fixed
overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module
production.
Required:
1. Compute the difference in cost between making and buying the control module.
2. Should MSI buy the modules from MLC or continue to make them?
3-a. Suppose that the MSI space currently used for the modules could be utilized by a new product line that would generate $27,000
in annual profit Recompute the difference in cost between making and buying under this scenario.
3-b. Does this change your recommendation to MSI?
Complete this question by entering your answers in the tabs below.
Req 1
Reg 2
Req 3A
Reg 3B
Compute the difference in cost between making and buying the control module.
Difference in Cost
Req 2 >
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