The Muscle-Man Company manufactures forklift tractors, and it supplies some parts to other manufacturers of forklifts. It fabricates most of the component parts but buys the engines, hydraulic systems, wheels, and tires from suppliers. Demand estimates indicate that Muscle- Man should increase its production level from 60 forklift units monthly to 70 units monthly. Sufficient slack exists in most departments to allow this increase, except that production of 10 extra chassis assemblies could be attained only by reallocating labor and equipment from fork- assembly manufacture to chassis-assembly manufacture. The fork-assembly department cur¬ rently produces 90 units monthly, and it supplies the 30 surplus units to other manufacturers at $188 each. With the expanded production level, 70 forks would be required, but the labor and equipment responsible for the remaining 20 units is thought to be just sufficient to produce the 10 extra chassis assemblies. Alternatively, the extra chassis assemblies could be purchased from a supplier, and the lowest quote is from Fenton Fabricators, for $305 per unit. The costs of the chassis and fork departments for a representative month were as follows:

(a) Should Muscle-Man make or buy the ten extra chassis assemblies?

(b) What qualifications would you add to your decision?

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Costs Direct materials Direct labor Depreciation Allocated burden of fuel, electricity, office, and other overheads (200% of direct labor) Total Production level Chassis DEPARTMENT Fork $ 4,650 $ 2,070 6,300 4,050 750 500 12,600 8,100 $24,300 $14,720 60 90