5:05 Doll LTE Amir Company manufactures a variety of ball-point pens. The company has just received an offer from an outside supplier to provide the ink cartridge for the company's Zippo pen line at a price of $1.92 per box of a dozen cartridges. The company is interested in this offer, since its own production of cartridges is at capacity. Amir estimates that if the suppliers offer were accepted, all current variable costs will be reduced by 15%. Under present conditions, Amir manufactures all of its own pens from start to finish. The Zippo pens are sold through wholesalers at $28 per box. Each box contains one dozen pens. Fixed overhead costs charged to the Zippo pen total $200,000." The present cost of producing one dozen Zippo pens (one box) based on a production level of 100,000 boxes is given below: Direct Material $6.00 make Direct Labor 6 - 4.00 STotal Overhead VOH DL 11.2-168 3.20 Yout To 20 . Total $13.20 71. 2 11.2 -152 = 11-2X0.85 Required: Should the Amir Company accept the outside supplier's offer? (Assume production levels are expected to be maintained at 100,000 boxes of pens.) Buy Selling price per unit 28 Saving Production units 100000 100000 make Buy Percent Amount Percent Amount 6 m 11:2-(11.2*0-15) (A) 2800000 an0000 4 11-2-168 1. 6 8- V Cartridge cost 102 (1.92 ) direct material 6 6000 1.92 3840 Volt Pinch direct labour 4 400C 6.8 71. 2 9. 52 direct O/H 1.2 1200 102000 11.44 (0.24 Fixed O/H 2 200000 200000 Total (B) MR . 0.24 1320000 1366000 make * Profit ((A-B) 1480000 1434000 (2.5 mark)5:09 Doll LTE b. What is the maximum price that Amir would be willing to pay the outside supplier per dozen cartridges? make price- Ost saved = 1.68 Current cost of the 100000 boxes= 51320000 Direct Matierial Cost = 56000 Direct Labour Cost= 340000 Direct Overhead= 102000 Fixed Overhead 200000 1152000 This cost will be paid= 15 14168000 CPU= 16.8 pet.6 (.5 marks) C. What qualitative factors should Amir consider in determining whether they should make or buy the cartridges? Quality of product timeliness of delivery (1 mark) imes Answer: In the current scenario, I suggest fo Amir that he should make the cartridge instead of buying because making is profitable then buying from outside market