6 eBook The Midwest Division of the Palbec Corporation manufactures subassemblies that are used in the corporation's final products. Lynn Hardt of Midwest's Profit Planning Department has been assigned the task of determining whether a component, MTR-2000, should continue to be manufactured by Midwest or purchased from Marley Company, an outside supplier, MTR-2000 is part of a subassembly manufactured by Midwest. Marley has submitted a bid to manufacture and supply the 32,000 units of MTR-2000 that Paibec will need for 20x1 at a unit price of $17.30. Marley has assured Paibec that the units will be delivered according to Palbec's production specifications and needs. While the contract price of $17.30 is only applicable in 20x1, Marley is interested in entering into a long-term arrangement beyond 20x1. Hardt has gathered the following information regarding Midwest's cost to manufacture MTR-2000 in 20x0. These annual costs will be incurred to manufacture 30,000 units. Direct material Direct labor Factory space rental $195,000 Print 120,000 84,000 Equipment leasing costs 36,000 Other manufacturing overhead 225,000 References Total manufacturing costs $660,000 Mc Hardt has collected the following additional information related to manufacturing MTR-2000 Direct materials used in the production of MTR-2000 are expected to increase 8 percent in 20x1. Midwest's direct-labor contract calls for a 5 percent increase in 20x1. The facilities used to manufacture MTR-2000 are rented under a month-to-month rental agreement. Thus, Midwest can withdraw from the rental agreement without any penalty. Midwest will have no need for this space if MTR-2000 is not manufactured. Equipment leasing costs represent special equipment that is used in the manufacture of MTR-2000. This lease can be terminated by paying the equivalent of one month's lease payment for each year left on the lease agreement. Midwest has two years left on the lease agreement, through the end of the year 20x2. Forty percent of the other manufacturing overhead is considered variable. Variable overhead changes with the number of units produced, and this rate per unit is not expected to change in 20x1. The fixed manufacturing overhead costs are expected to be the same across a relevant range of zero to 50,000 units. Equipment other than the leased equipment can be used in Midwest's other manufacturing operations. John Porter, divisional manager of Midwest, stopped by Hardt's office to voice his concern regarding the outsourcing of MTR-2000. Porter commented, "I am really concerned about outsourcing MTR-2000. I have a son-in-law and a nephew, not to mention a member that nmnnnant from Mariau rad of houding team hn nan MTD 3000 The linen their inhe if un