a. Prepare a schedule for management to determine the incremental cost or benefit of buying the electronic displays from the outside supplier.

b. Based on this schedule, would you recommend that the company outsource the production of electronic displays? Assume that if the electronic displays are purchased from the outside source, the factory space previously used to produce displays can be used to manufacture an additional 10,000 rowing machines with an estimated contribution margin of $25 per unit. The manufacture of the additional rowing machines would have no effect on fixed factory overhead. Would this new assumption change your recommendation as to whether to make or buy the electronic displays?

c. In support of your conclusion, prepare a schedule showing the incremental cost or benefit of buying the electronic displays from the outside source and using the factory space to production additional rowing machine

d. explain to management your conclusions.

The following information is available: The company needs 10,000 displays per year. The displays can be purchased from an outside supplier at a cost of $105 per unit. The unit cost of manufacturing the displays is $160 computed as follows: . DIRECT MATERIALS $ 350,000 DIRECT LABOR 550,000 FACTORY OVERHEAD: VARIABLE FIXED 300,000 400,000 TOTAL MANUFACTURING COSTS $1,600,000 $160 COST PER UNIT ($1,600,000 = 10,000) However, the decision has consequences for this family firm, namely, -outsourcing of the electronic displays will eliminate all the raw materials and direct labor costs but will eliminate only 80% of the variable factory overhead costs. If the displays are purchased from an outside source, machinery used in the production of displays will be sold at its book value. Accordingly, no gain or loss will be recognized. The sale of this machinery would also eliminate $12,000 in fixed costs associated with depreciation and taxes. No other reductions in fixed factory overhead will result from dis- continuing the production of displays. The following information is available: The company needs 10,000 displays per year. The displays can be purchased from an outside supplier at a cost of $105 per unit. The unit cost of manufacturing the displays is $160 computed as follows: . DIRECT MATERIALS $ 350,000 DIRECT LABOR 550,000 FACTORY OVERHEAD: VARIABLE FIXED 300,000 400,000 TOTAL MANUFACTURING COSTS $1,600,000 $160 COST PER UNIT ($1,600,000 = 10,000) However, the decision has consequences for this family firm, namely, -outsourcing of the electronic displays will eliminate all the raw materials and direct labor costs but will eliminate only 80% of the variable factory overhead costs. If the displays are purchased from an outside source, machinery used in the production of displays will be sold at its book value. Accordingly, no gain or loss will be recognized. The sale of this machinery would also eliminate $12,000 in fixed costs associated with depreciation and taxes. No other reductions in fixed factory overhead will result from dis- continuing the production of displays