Sunshine State Fruit Company sells premium-quality oranges and other citrus fruits by mail order. Protecting the fruit during shipping is important, so the company has designed & produces shipping boxes. The annual cost to make 80,000 boxes is:

Material	$112,000
Labour	20,000
Indirect manufacturing costs %u2013 variable	16,000
Indirect manufacturing costs %u2013 fixed	60,000
Total	208,000

Therefore, the box Cost per box averages = $2.60

Suppose Weyerhaeuser submits a bid to supply Sunshine State with boxes for $2.10 per box. Sunshine must give Weyerhaeuser the box design specifications, and the boxes will be made according to those specs.

Question 1

How much, if any, would Sunshine State save by buying the boxes from Weyerhaeuser?

Question 2

What subjective factors should affect Sunshine%u2018s decision about whether to make or buy the boxes?

Question 3

Suppose all the fixed costs represent depreciation on equipment that was purchased for $600,000 and is just about at the end of its 10-year life. New replacement equipment will cost $800,000 and is also expected to last 10 years. In this case, how much, if any, would Sunshine save by buying the boxes from Weyerhaeuser?

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