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b) Assume that the chair manufacturing department of Mulligan has the possibility to outsource part of the manufacturing process to a business partner which would
b) Assume that the chair manufacturing department of Mulligan has the possibility to outsource part of the manufacturing process to a business partner which would reduce the machine hours used in the manufacturing process by roughly 10%. Explain how this would affect the opportunity costs of accepting the special order (note: explaining is sufficient; no supporting calculations needed). Also, discuss some considerations the management should make before deciding whether to outsource part of the production process or not. (5 points) Mulligan Furniture specializes in high-end furniture for the living room. The chair manufacturing department currently manufactures 12,000 designer chairs annually. Each chair uses an average of 4 machine hours in the manufacturing process. To ensure the high-end quality, Mulligan's machines require chairs to be processed one after the other. Mulligan is currently manufacturing at full capacity. The following is an excerpt of Mulligan financial reports for the chair manufacturing department: Sales Price (per unit) $ 530 Allocated Overhead $ 864,000 Fixed Depreciation of Machinery $ 177,000 Direct Material Costs $ 1,967,000 Direct Labour $ 1,363,000
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