3.

Suppose that if the motors were purchased, Fresnos could use the freed capacity to launch a new product. The segment margin of the new product would be $99,380 per year. Calculate the total benefit or detriment to continue making the motor if you consider the additional margin from the new product. Would this impact your decision in part 2?

Make or Buy a Component [LO10-3] Fresnos manufactures a variety of yard tools. The company currently produces all of the necessary parts for its tools, including the motors. An outside supplier has offered to sell one type of motor to Fresnos, for a cost of $32 per unit; Fresnos currently makes 14,300 of the motors each year and the supplier can sell this same quantity of motors to Fresnos. To evaluate this offer, Fresnos has gathered the following information relating their current cost of producing Total at 14,300 units per year per unit Direct Material:s Direct Labor Variable Manu. Overhead Fixed Manu. Overhead, traceable* Fixed Manu. Overhead, allocated Total Cost 128,700 157,300 42,900 85,800 185,900 600,600 9 11 $ 13 $ 42 $ The traceable Fixed Manufacturin Overhead is made of 40% supervisory salaries and 60% depreciation of special equipment (no resale value). These supervisor positions will go away if Fresnos no longer makes these motors Reauired