Assignment: Chapter 8 Homework 11. Instant Enterprises manufactures one of the components used to assemble its main company product Specialty Products, Inc., has offered to make the component at a cost of $12.70 per unit. Instant Enterprises' current cost is $15.75 per unit of the component based on the 80,000 components that Instant Enterprises currently produces Read the requirements? This current cost per unit is based on the following calculations: -(Click the icon to view the information.) None of Instant Enterprises fixed costs will be eliminated if the component is outsourced. However, the freed capacity could be used to build a new product. This new product would be expected to generate $31,000 of contribution margin per year Requirement 1. If Instant Enterprises outsources the manufacturing of the component, will operating income increase or decrease? By how much? (Enter a "0" for any zero balances. Use a minus sign or parentheses in the Difference column when the cost to make exceeds the cost to buy) Incremental Analysis Outsourcing Decision Variable costs Make Component Outsource Component Difference Plus: Fixed costs Total cost of 80.000 components Less: Profit from another product Net cost If Instant Enterprises outsources the manufacturing of the component, operating income will (1) by $ Requirement 2. What is the maximum price per unit Instant Enterprises would be willing to pay if it outsources the component? Begin by identifying the basic formula that is used to determine the indifferent outsourcing cost per unit. Cost if making 80.000 components = Cost if outsourcing 80,000 components (2) Using the basic formula you determined above solve for the indifferent outsourcing cost per unit. (Round your answer to the nearest cent, SX.XX.) The maximum price per unit Instant Enterprises would be willing to pay if it outsources the component is $ per unit 1: Requirements 1. If Instant Enterprises outsources the manufacturing of the component, will operating income increase or decrease? By how much? 2. What is the maximum price per unit Instant Enterprises would be willing to pay if it outsources the component? 2: Data Table Direct material per unit Direct labor per unit Variable manufacturing overhead per unit 4.25 5.25 3.00 3.25 Fixed manufacturing overhead per unit $ 15.75 Total manufacturing costs per unit O increase decrease (2) O Direct materials + Direct labor Direct materials + Direct labor + Variable costs O Sales revenue - Fixed costs Sales revenue - Total costs O Sales revenue - Variable costs O Variable costs + Fixed costs (3) O Direct materials + Direct labor Direct materials + Direct labor + Variable costs O Sales revenue - Fixed costs O Sales revenue - Total costs Sales revenue - Variable costs O Variable costs + Fixed costs
