(Outsourcing) Modern Building Systems manufactures steel buildings for agricultural and commercial applications. Currently, it is trying to decide be¬ tween two alternatives regarding a major overhead door assembly for the company’s buildings. The alternatives are as follows:

# 1: Purchase new equipment with a five-year life and no salvage value at a cost of $5,000,000. Modern Building Systems uses straight-line depre¬ ciation and allocates that amount on a per unit of production basis.

#2: Purchase the assemblies from an outside vendor who will sell them for $240 each under a five-year contract.

Following is Modern Building System’s present cost to produce one door as¬ sembly based on current and normal activity of 50,000 units per year.

The new equipment would be more efficient than the old equipment and would reduce direct labor costs and variable overhead costs by 25 percent. Supervisory costs of $350,000 would be unaffected. The new equipment would have a capacity of 75,000 assemblies per year. Modern Building Sys¬ tems could lease the space occupied by current assembly production to an¬ other firm for $114,000 per year if the company decides to buy from the outside vendor.

a. Show an analysis, including relevant unit and total costs, for each alter¬ native of producing or buying the assemblies. Assume 50,000 assemblies are needed each year.

b. How would your answer differ if 60,000 assemblies were needed?

c. How would your answer differ if 75,000 assemblies were needed? dL In addition to quantitative factors, what qualitative factors should be considered?

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Direct material $139 Direct labor 66 Variable overhead 43 Fixed overhead* 36 Total $284 *The fixed overhead includes $7 supervision cost, $9 depreciation, and $20 general company overhead.