3 McVay Industries (MI) produces ice cream supplies including bowls, scoops and shake makers. MI made $605,000 of pre-tax profit last year. Juan Hernandez, the controller, compiled the following information. U Bowls Scoops Shake Makers TOTAL Units Manufactured and sold 2,000,000 500,000 100,000 8 9 DM per unit $0.50 $1.25 $5.00 10 DL per unit $0.10 $0.50 $4.00 11 VMOH per unit $0.15 $0.25 $5.00 12 FMOH per unit (based on curren $0.40 $0.50 $5.00 13 Total Cost per unit $1.15 $2.50 $19.00 14 Selling Price $2.00 $4.00 $25.00 15 Gross Profit per Unit $0.85 $1.50 $6.00 16 17 Total Sales $4,000,000 $2,000,000 $2,500,000 $8,500,000 18 Total COGS $2,300,000 $1,250,000 $1,900,000 $5,450,000 19 Total Gross Profit $1,700,000 $750,000 $600,000 $3,050,000 20 Total Variable (selling) costs (300000) (100000) (125000) (525000) 21 SG&A Fixed Costs - Direct (400000) (200000) (100000) (700000) 22 SG&A Fixed Costs -Common (680000) (300000) (240000) (1220000) 23 Pre-Tax Profit $320,000 $150,000 $135,000 $605,000 24 25 Part 1: If bowls are discontinued 26 Question 1: What will happen to the Pre-tax profit if Bowls are discontinued. 27 If the bowls are discontinued or outsourced, fixed manufacturing overhead costs of $366,500 to lease machinery related to bowls production (direct FMOH) could be eliminated. 28 Also, assume that direct fixed SG&A expenses relate directly to the bowls line and could be completely eliminated if the bowls product line is dropped or outsourced. 29 30 Part 2: If Bowls are outsourced 31 McVay Industries (MI) is looking for ways to improve profitability and are considering outsourcing production of bowls. 32 If the bowls are outsourced, fixed manufacturing overhead costs of $366,500 to lease machinery related to bowls production (direct FMOH) could be eliminated. 33 Assume that direct fixed SG&A expenses relate directly to the bowls line and could be completely eliminated if the bowls product line is dropped or outsourced. 34 Additionally, if the bowls are outsourced, the company would have excess capacity and could produce and sell additional 20,000 scoops 35 (for the same selling price of $4 per scoop), and additional 10,000 shake makers (for the same selling price of $25 per shake maker). Excess capacity means no additional fixed costs will be required. 36 Question 2: What is the maximum amount MI should pay for the bowl from an independent supplier (price per unit) to be no worse off financially? Show your work. Round your answer to two decimals