Anderson Company manufactures 30,000 units of part X258 each year for use on its production line. The cost per unit for part X258 at this level of activity is Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per part $3.60 $10.00 52.40 $9.00 $25.00 Cooper Corporation has offered to sell 30,000 units of part X258 each year to Anderson Company for 521 per part. If Anderson Company accepts this offer, the facilities they use to manufacture part X258 could be rented to another company at an annual rental of $80,000. Anderson Company has determined that two-thirds of the fixed manufacturing overhead being applied to part X258 would continue even if part X258 were purchased from Cooper Corporation. Will profits will increase or decrease if the outside supplier's offer is accepted? By how much? Problem2 Parker Brothers produces and sells a single product. Producing and selling a single unit of this product at the company's normal activity level of 60,000 units per year costs Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling & admin. expense Fixed selling & administrative expense 52.40 The product sells for $21 per unit. Parker Brothers' manufacturing capacity is 75,000 units per year. An order has been received from a specialty retailer for 15,000 units, at a reduced price of $14.00 per unit. This order would not affect regular sales $5.10 53.80 $1.00 $4.20 $1.50 1. If Parker Brothers accepts the order, how much will annual profits increase or decrease? (The order will not change the company's total fixed costs.) Parker Brothers has 1,000 units of this product left over from last year that are outdated and not as good as the current model. The units must be sold at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? When you think about this, think "clearance rack." When you see an item on a clearance rack for $2.99 that originally cost 550, most of the costs associated with the item are sunk, but there is one cost that still applies to selling the item. Explain. 2. Chapter 13 Problem 1 Only the costs that can be avoided as a result of purchasing from the outside are relevant in a make-or-buy decision. Name Per Unit Differentiol Costs 30,000 Units Make Buy Make Buy ost of purchasing Cost of makin Direct materials Direct labor Variable overhead Fixed owerhead otal cost The S_ continuing to produce the part internally, so the complete analysis is rental value of the space being used to produce part S-6 is an opportunity cost of Make Buy otal cost, from above Rental value of the space (opportunity cost) otal cost, including opportunity cost Net advantage in favor of Profits would increase / decrease (circle one) byS if the outside supplier's offer is accepted. Problem 2 1. Per unit 15,000 units ncremental sales ncremental costs Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative otal incremental costs ncremental profits Annual profits will increase /decrease (circle one) by S__ 2. The relevant cost is _ Explanation