Refer to problem 7-43. Assume Tullis could use the manufacturing facilities which are no longer needed to make the VI valves to produce a new line of small pumps. The small pumps would provide a contribution margin of $60,000.

Required:

a. Prepare a schedule that shows whether Tullis should buy the valves from Sure Flow or continue to make them.

b. Discuss the qualitative factors that Tullis should consider in this make or buy decision.

problem 7-43. 

John Tullis Equipment Company makes high-pressure pumps. Tullis makes 10,000 VI valve assembles per year for use in production. The manufacturing facilities used to make the VI valves are also used to produce a variety of other subassemblies and products.

Accordingly, no special production equipment is needed to make the VI valves. The production cost for VI valve assembles is as follows:

Sure Flow Valve Company has offered to supply the VI valve assemblies to Tullis for $32 each.
Required:

a. Prepare a schedule that shows whether Tullis should buy the valves from Sure Flow or continue to make them.

b. Discuss the qualitative factors that Tullis should consider in this make or buy decision.

Transcribed Image Text:

Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total $ 55,000 140,000 70,000 210,000 $475,000