Make versus buy, activity-based costing. The Svenson Corporation manufactures cellular rhodems. It manufactures its own cellular modem circuit boards (CA1CB), an important part

//ofthe cellular modem. It reports the following cost information about the costs of making

—^ CAICBs in 2006 and the expected costs in 2007:

Current Costs in 2006 Expected Costs in 2007 Variable manufacturing costs:

Direct materials costs per CA1CB $ 198 $ 187 Direct manufacturing labour costs per CMCB 55 49.50 Variable manufacmring costs per batch for setups, materials-handling, and quality control 1,760 1,650 Fixed manufacturing costs:

Fixed manufacturing overhead costs that can be avoided ifCMCBs are not made 352,000 352,000 Fixed manufacturing overhead costs of plant amortization, insurance, and administration that cannot be avoided even if CAICBs are not made 880,000 880,000 Svenson manufactured 8,000 CMCBs in 2006 in 40 batches of 200 each. In 2007, Svenson anticipates needing 10,000 CMCBs. The CMCBs would be needed in 80 batches of 125 each.

The Minton Corporation has approached Svenson about supplying CMCBs to Svenson in 2007 at $330 per CMCB on whatever delivery schedule Svenson wants.

Required 1. Calculate the total expected manufacturing (absorption) cost per unit of making CMCBs in 2007.

2. Suppose the capacity currently used to make CMCBs will become idle if Svenson pur¬

chases CMCBs from Minton. Should Svenson make CMCBs or buy them from Alinton?

3. Now suppose that, if Svenson purchases CMCBs from Minton, its best alternative use of the capacity currently used to make CMCBs is to make and sell special circuit boards

(CB3s) to the Essex Corporation. Svenson estimates the following incremental revenues and costs from CB3s:

Total expected incremental future revenues $2,200,000 1 otal expected incremental future costs $2,365,000 Should Svenson make CMCBs or buy them from Alinton?