ncroft currently manufactures a subcomponent that is used in its main product. A supplier has offered to supply all the subcomponents needed at a price of $240. Bancroft currently produces 20,000 subcomponents at the following manufacturing costs: Cost per Unit Direct materials $ 90 Direct labor
ncroft currently manufactures a subcomponent that is used in its main product. A supplier has offered to supply all the subcomponents needed at a price of $240. Bancroft currently produces 20,000 subcomponents at the following manufacturing costs: Cost per Unit Direct materials $ 90 Direct labor
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter17: Activity Resource Usage Model And Tactical Decision Making
Section: Chapter Questions
Problem 18E: A company is considering a special order for 1,000 units to be priced at 8.90 (the normal price...
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Question
Bancroft currently manufactures a subcomponent that is used in its main product. A supplier has offered to supply all the subcomponents needed at a price of $240. Bancroft currently produces 20,000 subcomponents at the following
Cost per Unit | |
---|---|
Direct materials | $ 90 |
Direct labor | 60 |
Variable manufacturing overhead | 70 |
Fixed manufacturing overhead | 50 |
Total unit cost | $ 270 |
Required:
- If Bancroft has no alternative uses for the manufacturing capacity, what would be the profit impact of buying the subcomponents from the supplier?
- If Bancroft has no alternative uses for the manufacturing capacity, what would be the maximum price per unit Bancroft should be willing to pay the supplier?
- Now assume Bancroft would avoid $640,000 in equipment leases and salaries if the subcomponent were purchased from the supplier. Now what would be the profit impact of buying from the supplier?
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